12. 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 flows may not necessarlly generate a retum equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumptian other than the project's IRR. Consider the following situation: Green Caterpiltar Garden Supplies inc, is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: Green Coterpiliar Garden Supplies incis WACC is 78 , and the project has the same risk as the firm's average project. Caiculate this project's modified internal rate of return (MIRA): 12.005 13.54% 1151% 14.22% If Green Caterpillar Garden Supplies inc.'s managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best oescribes the difference between the 1RR method and the MtRR methy The 1ath method uses the present value of the Inital investment to calculate the tra. The Mtart met he terminal value of the initial lovestment to calculate the Ming. The IRR fnethod assumes that cash flows are reifvested at a rate of refurn equal to the tar. The MiRR method assumes that cash fows are reinvetted at a rate of return tqual to the cost of capital. The IRR method uses only cash inflows to calculate the IRR. The MIRR methed uses both cash inflows and cash outflows to calculate the MIRR