Question

The financial analysists at the Dog Groomer-Pet Boutique "Indiana Bones Temple of Groom" Corporation Franchise headquarters have found themselves evaluatng a potentially profitable investment project for the firm. The large franchisor is relocating their headquarters to downtown Chicago, IL. Hence, the investment entails an upfront payment, followed by four years of moderate cash flows. The final cash flow in year six is negative. The final and negative cash flow is owed to potential cleanup costs. The investment stipulates that this is regardless of any renegotiation of continues use of the property, beyond year 6.

Therefore, the cash flows of this six-year potential investment under evaluation entail the following data:

Year	Cash Flow Project- Relocation to Chicago, IL
0	-$26,010
1	$9,088
2	$14,769
3	$10,522
4	$9,330
5	$8,289
6	-$3,581

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 is NOT equal to the reinvestment rate. ALL discounting (for all present value operations) takes place at a rate of 10.5%. All compounding (all future value calculations) uses the reinvestment rate of 8.5%. We must use the MIRR due to the non-conventional cash flow stream.

Please calculate MIRR (modified internal rate of return) using the combination approach.

**Please include a timeline and all detailed work**

Answer 1

Future value of year 1 cash flow = 9,088 ( 1 + 0.085)⁵ = 13,665.232

Future value of year 2 cash flow = 14,769 ( 1 + 0.085)⁴ = 20,467.747

Future value of year 3 cash flow = 10,522 ( 1 + 0.085)³ = 13,439.636

Future value of year 4 cash flow = 9,330 ( 1 + 0.085)² = 10,983.509

Future value of year 5 cash flow = 8,289 ( 1 + 0.085) = 8,993.565

Total cash inflows = 8,993.565 + 10,983.509 + 13,439.636 + 20,467.747 + 13,665.232 = 67,549.689

Present value of year 6 cash outflow = 3,581 / ( 1 + 0.105)⁶

Present value of year 6 cash outflow = 1,967.1191

Total cash out flow = 1,967.1191 + 26,010 = 27,977.1191

cash inflows = cash outflows ( 1 + R)ⁿ

67,549.689 = 27,977.1191 ( 1 + R)⁶

2.414462 = ( 1 + R)⁶

6th root of 2.414462 is 1.158253

1.158253 = 1 + R

0.158253 = R

15.8253 = MIRR