Question

​(Related to Checkpoint​ 11.6)  ​(MIRR calculation)  ​Emily's Soccer Mania is considering building a new plant. This project would require an initial cash outlay of ​$10 million and would generate annual cash inflows of ​$3 million per year for years one through four. In year five the project will require an investment outlay of ​$5 million. During years 6 through 10 the project will provide cash inflows of ​$5 million per year. Calculate the​ project's MIRR, given a discount rate of 10 percent.

Answer 1

Modified internal rate of return is calculated as below

MIRR = (FV of all cash inflows at the given cost of capital / PV of all cash outflow ) ^1/10 - 1

           = (55.1909438 / 13.10461 ) ^1/10 - 1

          = 4.211568 )^1/10 - 1

          = 1.15463 - 1

          = 0.15463

          = 15.46 %

MIRR is 15.46%

Year	Cash Flows	Future value of cash inflows	Calculation	PV of cash outflows	Calculation
0	-10			10	10
1	3	7.073843073	3*1.10^9
2	3	6.43076643	3*1.10^8
3	3	5.8461513	3*1.10^7
4	3	5.314683	3*1.10^6
5	-5			3.104607	5/1.10^5
6	5	7.3205	5*1.10^4
7	5	6.655	5*1.10^3
8	5	6.05	5*1.10^2
9	5	5.5	5*1.10^1
10	5	5	5
Sum		55.1909438		13.10461