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CMA Intermediate · Financial Management and Business Data Analytics · Capital Budgeting

Narmada Ltd. has a 3-year project costing ₹1,00,000 now. Inflows are ₹50,000 at the end of Year 1, ₹60,000 at Year 2 and ₹70,000 at Year 3. The finance rate and reinvestment rate are both 10%. What is the Modified IRR, to the nearest whole percent? (Use 1.1^2 = 1.21; cube root of 1.8 ≈ 1.2164.)

The Modified IRR is about 25%, closest to 26% among the options. Compounding inflows at 10% gives a terminal value of ₹1,96,500 against an outlay of ₹1,00,000. The cube root of 1.965 is roughly 1.253, so MIRR is about 25.3%.

  1. A22%Correct
  2. B10%
  3. C26%
  4. D18%

Explanation

Terminal value = 50,000×1.21 + 60,000×1.1 + 70,000 = 60,500 + 66,000 + 70,000 = 1,96,500. PV of outflow = 1,00,000. MIRR = (1.965)^(1/3) − 1. Since 1.8^(1/3) ≈ 1.2164 and 1.965 is a bit higher, the cube root is about 1.25, i.e. 25%; checking 1.25^3 = 1.953, 1.253^3 ≈ 1.967, so MIRR ≈ 25.3%. Nearest option is 26%.

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