Question

In: Finance

Central Machines is considering a project that will generate cash flow of $2,304,714 per year for...

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.

Solutions

Expert Solution

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%

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