P11-14 (similar to) Question Help * (Related to Checkpoint 11.6) (MIRR calculati
ID: 1175581 • Letter: P
Question
P11-14 (similar to) Question Help * (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 $9.5 million and would generate annual cash inflows of $2 million per year for years one through four. In year five the project will require an investment outlay of $6 million During years 6 through 10 the project will provide cash inflows of S6 million per year. Calculate the project's MIRR, given a discount rate of 12 percent. The MRR of the project with a discount rate of 12% 1 % (Round to two decimal places.)Explanation / Answer
Solution:
Statement Showing cash flows
Solution:
Statement Showing cash flows
Years Cash Flows (in Million) (in $) 0 -9.5 1 2 2 2 3 2 4 2 5 -6 6 6 7 6 8 6 9 6 10 6 MIRR= ((Terminal Cash Flows / Cash Outlay)^1/n)-1 Terminal Cash flows = Future Value of Cash Inflows Terminal Cash flows = 2(1.12)^9+2(1.12)^8+2(1.12)^7+2(1.12)^6+6(1.12)^4+6(1.12)^3+6(1.12)^2+6(1.12)+6 Terminal Cash Flows= 5.546+4.952+4.421+3.948+9.441+8.430+7.526+6.72+6= 56.984 Cash Outlay = Present Value of Cash Outlay PV of cash outlay = 9.50*1+6/(1.12)^5 PV of cash outlay = 9.50+3.40= 12.90 n= Life of project i.e. 10 years MIRR= ((56.984/12.90)^1/10)- 1 MIRR= ((4.417)^1/10)-1 Solved value by using calculator (4.417)^1/10 = 1.1602 MIRR= 1.1602-1= 0.1602 or 16.02%Related Questions
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