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Sir could you please help me in part (a) of the above question how is MIRR calculated.
2 3 4 5
Pv 2 5 6.7 189.6Multiplier at 11% 1.368 1.232 1.11 1
I know the pv and 11% is also calculate but how did they put this 11% in the formula to get the multiplier figure. Then we can calculate the reinvested value by multiplying the above two correct ?
I am puzzled – the only exam question ever called Sleepon was asked in December 2005 and did not ask anywhere for MIRR 🙁
I have the actual exam in front of me, and Sleepon does not have a part (a)(i) in either the question or the answer 🙂
It asked for a report analysing whether or not Sleepon should undertake the investment in the theme park.
(MIRR was not in the syllabus in 2005!)
I can only guess that maybe you have this question in a Revision Kit and they have added an extra bit which was not in the original exam question.
Thank you sir. Actually I am using BPP revision kit and (a) (I) ask
Analyses whether or not Sleepon should undertake the investment in the theme park using the NPV,MIRR and duration method.And I have written the figure above and just wanted to know how they calculated this Multiplier at 11% p.a. I could make out present value.
Sir please help I think I am struggling with using the formula so just wanted to see using these figures.
Thanks.
OK
This approach to getting the MIRR needs you to calculate the terminal value.
You then divide the terminal value by the initial investment, text the nth root, and then subtract 1.
For the terminal value, here you want the value at time 5.
The cash flow at time 5 is already at time 5 (!) and so the multiplier is 1.To get the time 5 value of the flow at time 4, you add on 1 years interest at 11%, so multiply the cash flow by 1.11
To get the time 5 value of the flow at time 3, you add on 2 years interest at 11%, so multiply the cash flow by 1.11^2 = 1.232
To get the time 5 value of the flow at time 2, you add on 3 years interest at 11%, so multiply the cash flow by 1.11^3 = 1.368
Hope that helps 🙂
Hi sir, may I know when are we supposed to use this MIRR formula? Usually the formula we use is different from this.
You can use either approach – it doesn’t matter.
I would use the formula.It is just that the BPP answer that was being asked about happens to use the other way for some reason – they didn’t need to.
Dear John
Was also wondering – In Sleepon the project is all debt and the company’s gearing changes as a result so why is APV not used instead of NPV?
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