Question

Your firm is considering a project that will cost $4.422 million up​ front, generate cash flows of $3.46 million per year for 33 ​years, and then have a cleanup and shutdown cost of $6.04 million in the fourth year.

a. How many IRRs does this project​ have?

b. Calculate a modified IRR for this project assuming a discount and compounding rate of 9.8%.

c. Using the MIRR and a cost of capital of 9.8%​, would you take the​ project

Answer 1

1.
-4.422+3.46/IRR*(1-1/(1+IRR)^3)-6.04/(1+IRR)^4=0
=>IRR=3.073%,16.994%

As there are 2 sign changes there are 2 IRRs

2.
MIRR=((3.46/9.8%*(1-1/1.098^3)*1.098^4)/(6.04/1.098^4+4.422))^(1/4)-1=9.983%

3.
Yes