Question

Emily's Soccer Mania is considering building a new plant. This project would require an initial cash outlay of $8.5 million and would generate annual cash inflows of $3.5 million per year for years one through four. In year five the project will require an investment outlay of $5.5 million. During years 6 through 10 the project will provide cash inflows of $5.5 million per year.

Question:

Calculate the project's MIRR, given a discount rate of 9 percent. The MIRR of the project with a discount rate of 9% is... (?)%. (Round to two decimal places.)

Answer 1

We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.   

Future value of inflows=3.5*(1.09)^9+3.5*(1.09)^8+3.5*(1.09)^7+3.5*(1.09)^6+5.5*(1.09)^4+5.5*(1.09)^3+5.5*(1.09)^2+5.5*(1.09)+5.5

=$59.7594914 million

Present value of outflows=Cash flows*Present value of discounting factor(rate%,time period)

=8.5+5.5/1.09^5

=$12.0746226 million

MIRR=[Future value of inflows/Present value of outflows]^(1/time period)-1

=[59.7594914/12.0746226]^(1/10)-1

=17.34%(Approx)