Question

The financial analysists at the world’s largest franchisor of Dog Groomer- Pet Boutiques, “Indiana Bones Temple of Groom” has acquired a large construction firm to assist in opening further boutiques across the nation. The construction division of the world’s large Pet Boutique is deciding whether to undertake the construction of multiple stores. You are faced with evaluating a project which basically offers $500,000 upfront to cover initial costs, and other related costs which continue in years 1-4, followed by revenues downstream which begin to payout in year 5. Therefore, the cash flows of this five-year potential construction project under evaluation entails the following cash flows: The company, Indiana Bones Temple of Groom, uses a more accurate approach to the modified internal rate of return calculation. Remember, in this question, the discount/finance rate = reinvestment rate. All discounting (for all present value operations), i.e. financing rate, takes place at a rate of 10.00%. All compounding (all future value calculations) uses the reinvestment rate of 10.0%. We could say that 10% is the cost of capital. We must use the MIRR due to the non-conventional cash flow stream. Please calculate MIRR (modified internal rate of return) u, otherwise known as the combination approach. The question: What is the MIRR for Dog Groomer- Pet Boutique “Indiana Bones Temple of Groom”? Please perform calculations.

Year	Cash Flow Project – Relocation to Chicago, IL
0	+$500,000
1	-$4,000,000
2	-$4,000,000
3	-$4,000,000
4	-$4,000,000
5	+$20,000,000

Answer 1

MIRR = 10.41%

Year	Cash Flow Project – Relocation to Chicago, IL
0	$500,000
1	($4,000,000)
2	($4,000,000)
3	($4,000,000)
4	($4,000,000)
5	$20,000,000
MIRR	10.41%

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