Unformatted text preview: exclusive projects are involved. g. 1. Define the term Modified IRR (MIRR). Find the MIRRs for franchises L and S. Answer: MIRR is that discount rate which equates the present value of the terminal value of the inflows, compounded at the cost of capital, to the present value of the costs . Here is the setup for calculating franchise L's modified IRR: 0 1 2 3 | | | | PV Of Costs = (100.00) 10 60 80.00 66.00 12.10 r = 10% TV OF INFLOWS = 158.10 MIRR = ? PV Of TV = 100.00 = $100 = 3 ) MIRR 1 ( 10 . 158 $ + . PV costs = n ) MIRR 1 ( TV + = ∑ = + n t t t ) r 1 ( COF = n n 1 t t n t ) MIRR 1 ( ) r 1 ( CIF + + ∑ = − . After you calculate the TV, enter n = 3, PV = -100, pmt = 0, fv = 158.1, and then press i to get the answer, MIRR L = 16.5%. We could calculate MIRR S similarly: = 16.9%. Thus, franchise S is ranked higher than L. This result is consistent with the NPV decision. Mini Case: 11 - 37...
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- Spring '08
- Net Present Value, Internal rate of return, $100, term Modified IRR