Question

4. Modified internal rate of return (MIRR) 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 fiows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumptian other than the project's IRR. Consider the following situation: Grey FOX Avlabon Company is analyzing expected cash flaws are: project that requires an initial investment of $2,500,000. The project's Year Cash ear $300,000 Year 2 -150,000 Year 3 425,000 ear 450,000 Grey Fox Aviaton Company's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR). -16.09% О 20.34% 25.99% Q 18.DB% If Gray Fox Aviation Company's managers select projects based on the MIRR criterion, they should Independent project. this Which of the following statements about the relationship between the IRR and the MIRR is correct? A typical firm's IRR will be less than its MIRR. A typical firm's IRR will be equal to its MIRR A typical firm's IRR will be greater than its MIRR. Flash Playor WIN 3,0,0,153 Search Windows e 9