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 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: Blue Llama Mining Company is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Cash Flow $325,000 -125,000 475,000 500,000 Year 3 Year 4 Blue Llama Mining Company's WACC is 10%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 30.40% 33.44% 31.92% 0 28.88% 1r Blue Llama Mining Company's managers select projects based on the MIAR criterion, they should this Independent project Which of the following statements best describes the difference between the the method and the MIRR method? The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash Infows and cash outflows to calculate the MIRR The FAA method uses the present value of the initial investment to calculate the IRR. The MIRR method uses the terminal value of the Initiat investment to calculate the MIRR. The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows are reinvested at a rate of return equal to the cost of capital