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. Calculate the​ project's MIRR, given a discount rate of 9 percent. Please explain step by step in layman's terms

Answer 1

There is cash outfow in year 1 and year 5
So PV of cash outflows = 8.5 +3.5/(1+rate)^5 =8.5 +5.5/(1+9%)^5 = 12.0746

Cash inflows of 3.5million from year 1 to year 4 and 5.5 million from year 6 to year 10
So FV of cash inflows =3.5*(1+r)^9+3.5*(1+r)^8+3.5*(1+r)^7+3.5*(1+r)^6+5.5*(1+r)^4+5.5*(1+r)^3+5.5*(1+r)^2+5.5*(1+r)^1+5.5 = 3.5*(1+9%)^9+3.5*(1+9%)^8+3.5*(1+9%)^7+3.5*(1+9%)^6+5.5*(1+9%)^4+5.5*(1+9%)^3+5.5*(1+9%)^2+5.5*(1+9%)^1+5.5 = 59.7594

MIRR = (FV of Cash Inflows/PV of cash Flows)^(1/n)-1 = (59.7594/12.0746)^(1/10)-1 =17.34%

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