In: Finance
Central Machines is considering a project that will generate cash flow of $2,304,714 per year for 4 years, followed by $4,233,139 per year for 3 years, followed by $5,501,087 per year for 3 years. All cash flows will occur at the end of the year. If the cost of the project is $16,064,914, and the company's WACC is 11.7%, what is the Modified Internal Rate of Return of the project? State your answer as a percentage to 2 decimal places.
Ans 14.02%
Year | Cash Flows | FV Factor | Formula | Terminal Value | |
0 | -16064914 | ||||
1 | 2304714 | 2.707 | (1 + 11.7%)^(10-1) | 62,38,721 | |
2 | 2304714 | 2.423 | (1 + 11.7%)^(10-2) | 55,85,248 | |
3 | 2304714 | 2.170 | (1 + 11.7%)^(10-3) | 50,00,222 | |
4 | 2304714 | 1.942 | (1 + 11.7%)^(10-4) | 44,76,474 | |
5 | 4233139 | 1.739 | (1 + 11.7%)^(10-5) | 73,60,857 | |
6 | 4233139 | 1.557 | (1 + 11.7%)^(10-6) | 65,89,845 | |
7 | 4233139 | 1.394 | (1 + 11.7%)^(10-7) | 58,99,593 | |
8 | 5501087 | 1.248 | (1 + 11.7%)^(10-8) | 68,63,646 | |
9 | 5501087 | 1.117 | (1 + 11.7%)^(10-9) | 61,44,714 | |
10 | 5501087 | 1.000 | (1 + 11.7%)^(10-10) | 55,01,087 | |
Total | 5,96,60,407 | ||||
MIRR = | (Sum oF terminal Cash Flows/ Initial Investment)^1/n - 1 | ||||
(59660407 / 16064914)^1/10 - 1 | |||||
(59660407 / 16064914)^0.10 - 1 | |||||
14.02% | |||||