Question

CF0	-50020
CF1	34100
CF2	45600
CF3	35700
CF4	40400
CF5	47000
CF6	23700
Investor's Rate	13

Given the above cash flows and investor's required rate of return, what is the Modified Internal Rate of Return (Financial Manager's Rate of Return)? (Express your answers as XX.XX percent without the %. For example if your calculator says 12.24 then enter that. If you use Excel and your answer in decimal is .1224, enter 12.24)

Answer 1

Project
Combination approach
All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the project’s life
Thus year 6 modified cash flow=(62827.04)+(74349.6)+(51511.42)+(51586.76)+(53110)+(23700)
=317084.82
Thus year 0 modified cash flow=-50020
=-50020
Discount rate	0.13
Year	0	1	2	3	4	5	6
Cash flow stream	-50020	34100	45600	35700	40400	47000	23700
Discount factor	1	1.13	1.2769	1.442897	1.6304736	1.842435	2.081952
Compound factor	1	1.842435	1.630474	1.442897	1.2769	1.13	1
Discounted cash flows	-50020	0	0	0	0	0	0
Compounded cash flows	-1.9992E-05	62827.04	74349.6	51511.42	51586.76	53110	23700
Modified cash flow	-50020	0	0	0	0	0	317084.8
Discounting factor (using MIRR)	1	1.360417	1.850734	2.517769	3.425215	4.65972	6.339161
Discounted cash flows	-50020	0	0	0	0	0	50020
NPV = Sum of discounted cash flows
NPV=	1.43918E-08
MIRR is the rate at which NPV = 0
MIRR=	36.04%
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Compounding factor =	(1 + reinvestment rate)^(time of last CF-Corresponding period in years)