Question

MIRR unequal lives. Singing Fish Fine Foods has ​$2,080,000 for capital investments this year and is considering two potential projects for the funds. Project 1 is updating the​ store's deli section for additional food service. The estimated​ after-tax cash flow of this project is ​$600,000 per year for the next five years. Project 2 is updating the​ store's wine section. The estimated annual​ after-tax cash flow for this project is ​$510,000 for the next six years. The appropriate discount rate for the deli expansion is 9.3​% and the appropriate discount rate for the wine section is 9.0​%. What are the MIRRs for the Singing Fish Fine Foods​ projects? What are the MIRRs when you adjust for unequal​ lives? Do the MIRR adjusted for unequal lives change the decision based on​ MIRRs? ​Hint: Take all cash flows to the same ending period as the longest project.

**Please note: I need the MIRR for the unequal lives. I did find the reinvestment rate for the deli as 11.67% & the wine section as 10.74%. I need help with the rest of the problem. Thanks.

Answer 1

	Project 1	Project 2
MIRR	9.77%	9.40%

We calculate the cash flows till year 30. For project 1, there is a repeated capital expense after every 5 years, while for project 2, it occurs in 6 years. Hence cash flows are as below

Year	Project 1	Project 2
0	-2080000	-2080000
1	600000	510000
2	600000	510000
3	600000	510000
4	600000	510000
5	-1480000	510000
6	600000	-1570000
7	600000	510000
8	600000	510000
9	600000	510000
10	-1480000	510000
11	600000	510000
12	600000	-1570000
13	600000	510000
14	600000	510000
15	-1480000	510000
16	600000	510000
17	600000	510000
18	600000	-1570000
19	600000	510000
20	-1480000	510000
21	600000	510000
22	600000	510000
23	600000	510000
24	600000	-1570000
25	-1480000	510000
26	600000	510000
27	600000	510000
28	600000	510000
29	600000	510000
30	600000	510000

WORKINGS