The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. How

[answerhappygod]

The Irr Evaluation Method Assumes That Cash Flows From The Project Are Reinvested At The Same Rate Equal To The Irr How 1 (39.13 KiB) Viewed 45 times

The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $2,500,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cold Goose Metal Works Inc.'s WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 23.07% Cash Flow $350,000 -125,000 500,000 475,000 O-13.55% O 24.43% O 21.71% If Cold Goose Metal Works Inc.'s managers select projects based on the MIRR criterion, they should Which of the following statements about the relationship between the IRR and the MIRR is correct? O A typical firm's IRR will be less than its MIRR. O A typical firm's IRR will be greater than its MIRR. O A typical firm's IRR will be equal to its MIRR. (Alt + A) this independent project.