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1 MIRR
The project cost is Rs.10 cr and the CF stream is as follows. The cost of capital of the firm is 15%.

Year Free CF Formula Compounding Factor Compounded

n-1 (5-t)
(1+r) (1+15%) Sum
1 2.5 (1.15)^5-1 1.75 4.37
2 3.5 (1.15)^5-2 1.52 5.32
3 3.5 (1.15)^5-3 1.32 4.63
4 3.5 (1.15)^5-4 1.15 4.03
5 3.5 (1.15)^5-5 1.00 3.5
Total Compounded Future Value 21.85

21.85 / .
= 2.185 (2.185) = (2.185) = 1.1692 = 1.1629 − 1
10 = 0.1692 𝑜𝑟 16.92%

0 1 2 3 4 5

For 5th year – No

Rs. 10 Cr Rs. 2.5 Cr Rs. 3.5 Cr Rs. 3.5 Cr Rs. 3.5 Cr Rs. 3.5 Cr interest
For 1 year
@ 15%
4.03 Cr
For 2 years
@ 15%
4.63 Cr
For 3 years
@ 15% 5.32 Cr
For 4 years
@ 15%
Cashflow 4.37 Cr
21.85 Cr
2.5
3.5 21.85
10 =
3.5 𝐹𝑉 1+𝑟
𝑃𝑉 = 21.85
3.5 1+𝑟 1+𝑟 =
10
(1 + 𝑟) = (2.185) /
3.5
16.5 Cr 1+ r = 1.1692
r = 1.1692 – 1 = 16.92%

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Terminal Method
• The project cost is Rs.10cr and the CF stream is as follows
• The cost of capital of the firm is 15%. The reinvestment rate of the intermittent cash flow is 12%
Year Free CF Compounding Factor Future value of Free
(Rs.cr) (1+12%)(5-t) CF @12% (Rs.cr)
(1) (2) (3) (4) = (3) X (2)
1 2.5 1.574 3.93
2 3.5 1.405 4.92
3 3.5 1.254 4.39
4 3.5 1.120 3.92
5 3.5 1.000 3.50
Total Future Value of Free CF 20.66
Total future value of the Free CF after 5 years would be Rs.20.66cr if the 20.66
reinvestment is 12%. 10 =
𝐹𝑉 1+𝑟
20.66 / 20.66 𝑃𝑉 = 20.66
𝑀𝐼𝑅𝑅 = −1 = 2.066 1+𝑟 1+𝑟 =
10 10 10
(1 + 𝑟) = (2.066) /
(2.066) / = (2.066) . = 1.1562
1+ r = 1.1562
= 1.1562 − 1 = 0.1562 𝑜𝑟 15.62%
r = 1.1562 – 1 = 15.62%

0 1 2 3 4 5

K = 15% For 0 year

Rs. 10 Cr Rs. 2.5 Cr Rs. 3.5 Cr 3.5 Cr Rs. 3.5 Cr Rs. 3.5 Cr @ 12%
For 1 year
@ 12%
3.92 Cr
For 2 years
@ 12%
4.39 Cr
For 3 years
@ 12% 4.92 Cr
For 4 years
@ 12%
Cashflow 3.93 Cr
20.66 Cr
2.5
3.5 3.93 10 =
20.66
𝐹𝑉 1+𝑟
3.5 4.92 𝑃𝑉 = 20.66
4.39 1+𝑟 1+𝑟 =
3.5 10
/
3.92 (1 + 𝑟) = (2.066)
3.5 3.50
1+ r = 1.1562
16.5 Cr 20.66
r = 1.1562 – 1 = 15.62%

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0 1 2 3 4
2

Rs. 300 Rs. 140 Rs. 120 Rs. 80 Rs. 60

For 0 year
@ 14%
60.00
For 1 years
@ 14%
91.20
For 2 years
@ 14% 155.95
For 3 years
@ 14%
207.42
514.67

514.67
300 =
𝐹𝑉 1+𝑟
𝑃𝑉 = 514.67
1+𝑟 1+𝑟 =
As MIRR (14.44)> K (14%), the project is accepted 300
(1 + 𝑟) = (1.7156) /

1+ r = 1.144
r = 1.144 – 1 = 14.44%

MIRR- Terminal Method

Discount rate is 10% and

Reinvestment Rate is 8%

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Future Value of Positive Cash Flows: Inflows

3 Financing Cost = 5%
Present Value of Negative Cash Flows: Outflows and Negative Cash inflows (Loss)
Reinvesting Rate = 10%
Reinvestment Rate: The rate at which positive cash flows are reinvested.
/
CF 309104
100000 + 45351 = 145,351 𝑀𝐼𝑅𝑅 = −1 𝐹𝑉
Investment 145351 = 𝑃𝑉 =
/
1+𝑟 1+𝑟
309104 309104
= −1 1+𝑟 =
145351
@5% . 145351
309104 /
= −1 (1 + 𝑟) = (2.1266)
145351
= 1.1628 −1 1+ r = 1.1629
= 0.1628 0𝑜𝑟 16.28%
r = 1.1629 – 1 = 16.29%
Year Free CF Formula (reinvestment Outflows Compounding Factor Compounded Sum of
n-1 (5-t)
(1+r) (1+15%) Inflows

0 (100000) 100000
1 18000 (1.10)^5-1 1.4641 26354
2 (50000) 50000  (1/1.05)^2 = 45351
3 25000 (1.10)^5-3 1.21 30250
4 25000 (1.10)^5-4 1.10 27500
5 225000 (1.10)^5-5 1.00 225555
Total Compounded Future Value 145351 309104

4 Financing Cost = 5%
(1000) + (1809) = (2809)
Reinvesting Rate = 10%

0 (1000)
1 800
2 1000
3 1300
4 (2200)
1430 1210 1065 = 3705

3705
2809 =
1+𝑟
3705
𝐹𝑉 1+𝑟 =
𝑃𝑉 = 2809
1+𝑟 /
(1 + 𝑟) = (1.3189)
1+ r = 1.0716
r = 1.0716 – 1 = 7.16%