Problem:

You are developing a proposal to open three new Mexican restaurants around the Metro Detroit area over the next four years. The project requires a purchase of $800,000 of equipment with a four year useful life and a book value of zero at the end of the four years. However, you expect to be able to sell the equipment at the end of the development project for $350,000 (Don't worry about taxes for this). During the four years of the project, you will need $175,000 net working capital, fixed costs will be $500,000 and variable costs will be $125,000 per restaurant location. The sales for each restaurant are projected to be $500,000 per year. The investors that you plan to bring your proposal to require a return of at least 10% on any investments they make. Your tax rate is 30%.

Requirement:

Question 1: What is the IRR for the project?

Question 2: What is the MIRR for the project?

Question 3: What causes the difference between these numbers?

Note: Please show basic calculation