Ch 11: Assignment - The Basics of Capital Budgeting 4. Modified internal rate of return (MIRR) The IRR evaluation method

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Ch 11 Assignment The Basics Of Capital Budgeting 4 Modified Internal Rate Of Return Mirr The Irr Evaluation Method 1 (62.57 KiB) Viewed 106 times

Ch 11: Assignment - The Basics of Capital Budgeting 4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvented at the same rate equal to the R. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRA approach makes a more reasonable assumption other than the project's IRR. Consider the following situation Celestial Crane Cosmetics e analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flows are Year Year 1 Cash Flow $275,000 -200,000 Year 2 Year 3 425,000 450,000 Year 4 Colectial Crane Cosmetics' WACC la 7%, and the project has the same risk as the firm's awerage project. Calculate the projects modified internal rato of return (MIRR) 20.92% O 15.13% O 15.85 O 11.53% if Celestial Crane Cosmetics's managers select projects based on the MERR criterion, they should this independent project Which of the following statements about the relationship between the IAR and the MIRR la correct? A typical firm's IRR will be greater than its MIRR. A typical firm's TRR will be equal to its MIRR A typical firm' IRR will be less than its MIRR.