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  1. Hello Sir,

    The MIRR is divided into two stages. One is Investment and the other is Return …
    It is mentioned in the Theory of P4 that, “Convert all investment phase outlays as single equivalent payment at time 0, where necessary, any investment phase outlays arising after year 0 must be discounted back to time 0 using the company cost of capital”.

    Now the question is if we have year 0 investment of 15,000 sterlings and we have 5,400 sterlings investment in year 1, how are we going to discount the investment of year 1 which is 5400 back to year 0. Thank you

  3. i need calculator keying help.
    Using casio calculator fx-82ms how do key to (5*squire root of 1.129) to have answer 1.02438. i can find the correct calculator key inputting..

    Thanks in advance

  4. Dear sir,

    You mentioned in your earlier lecture that there can be more than one IRR and that one cannot compare projects using IRR.

    My question is how did MIRR solved this problem if it ever did.

    Please enlighten me with this.

    Tq

      • Dear sir,

        Thank you for the very splendidly tactful reply.

        However, about the investment phase and return phase, I find it rather difficult to reason out the following items as detailed below:

        1) tax savings to be treated as investment phase

        2) the additional working capital for subsequent year, say after year zero i.e that is in year 1, such additional working capital is to be treated as return phase.

        Please enlighten me on this.

        Tq in advance.

      • To be honest it is slightly arguable.
        However, as far as your examiner is concerned, the investment phase is simply the original investment (when the net cash flows are negative) and the return phase is all the later flows.
        In P4, the cash flows will be relatively simple when MIRR is required i.e. negative at time 0 (and possibly time 1 if the investment is payable over 2 years, but less likely) – this forms the investment phase. All the later net flows are treated as the return phase.

      • Dear sir,

        Thank you for your explanation. It has indeed helped me to understand your lecture better now which has unveiled so many points which I have never thought to have overlooked or misunderstood them.

        Tq

      • sorry to come back on this. However how can there be more than 1 IRR?

        So the MIRR solves that issue as well as the issue of the restriction on the investment amounts (as per previous lecture with Project A @15% and B @18%)…..I am still a little confused as to how the MIRR solves this.

        Thank you

      • The fact that there can be more than one IRR is revision from F2 and F9 (although you would never be expected to deal with it – just to be aware that it can happen). Every time there is a change in the sign of the cash flows (positive to negative and vice versa) there is potentially (but not always) one more IRR.

        MIRR treats the flows as though they are reinvested at the cost of capital and therefore always leads to the same conclusion as NPV when choosing between investments. IRR treats the flows as though they are reinvested at the IRR and can therefore lead to different conclusions than NPV when choosing between investments.

  5. Dear John,

    You have mentioned that MIRR is almost always less than IRR. This is logical as MIRR assumes investment at cost of capital which is less than IRR for positive/acceptable projects.

    Is it possible for MIRR to be more than IRR? hypothetically I can only think of a case when cost of capital is more than IRR. This is the only case when MIRR can be more than IRR, right?

    Additionally, I suppose the case when IRR is less than Cost of Capital and MIRR is more than capital can never happen right? because if Mirr is more than cost of capital it means that (PVr/PV1)^1/n must be >=1 and this can only happen when PVr is more than PV1 which itself implies that project has NPV>=0 which subsequently means that IRR>=cost of capital. Please confirm if my understanding is correct.

    Thank you for amazing lectures!

  6. the initial working capital requirement in year zero will fall under the investment phase, so will the subsequent working capital requirements be under the same investment phase or return phase? thank you in advance,

    • That is a very good question 馃檪

      I think that if they do occur, then best for the exam is to treat them as part of the return phase (although I am sure that if they were relevant then the examiner would allow it either way).

      • Sir,
        As we know working capital requirements in subsequent years can change in either way as increase or reduction, what if increase in working capital(outflow ) is considered part of investment phase and decrease in WC as return phase. Will this approach be acceptable or is it plain wrong?

  12. I have a query:
    What if any of the cash flows are negative? So you will have the initial investment and then cash inflows over the years. Say for example, Year 2 makes a negative cash flow, then will that cash flow be considered in PV of return or investment?

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