Question

3. Emily’s Soccer Mania is considering building a new plant. This project would acquire an initial cash outlay of $10 million and would generate annual cash inflows of $3million per year for Years 1 through 4.In year 5 the project will acquire an investment outlay of $5,000,000. During Years 6 through 10 the project will provide cash inflows of $5million per year. Calculate the Project’s MIRR given a discount rate of 14 percent

I want the answer in details not on excel

Answer 1

Modified IRR:

It is similar to IRR. In IRR, we are assumed that intermediary cashflows are reinvested at IRR only. In MIRR, we assume that Intermediary CFs are reinvested at Reinvestment Rate rather than at IRR.
FV of Cash flows at Reinvestment rate:

Year	Bal Yrs	CF	FVF @14%	FV of CFs
1	9	$ 30,00,000.00	3.2519	$    97,55,845.56
2	8	$ 30,00,000.00	2.8526	$    85,57,759.27
3	7	$ 30,00,000.00	2.5023	$    75,06,806.37
4	6	$ 30,00,000.00	2.1950	$    65,84,917.87
5	5	$ -50,00,000.00	1.9254	$   -96,27,072.91
6	4	$ 50,00,000.00	1.6890	$    84,44,800.80
7	3	$ 50,00,000.00	1.4815	$    74,07,720.00
8	2	$ 50,00,000.00	1.2996	$    64,98,000.00
9	1	$ 50,00,000.00	1.1400	$    57,00,000.00
10	0	$ 50,00,000.00	1.0000	$    50,00,000.00
FV of CFs	$5,58,28,776.96

FV = PV (1+r)^n

55828776.96 = 10000000(1+r)^10

(1+r)^10 = 55828776.96 / 10000000

= 5.5829

= 1.1876

r = 1.1876- 1

= 0.1876 i.e 18.76%

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