4. Modified Internal rate of retum (MIRR) Aa Aa 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 retum equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. 15 Consider the following situation: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $2,225,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Cash Flow $275,000 -200,000 500,000 400,000 Year 4 Celestial Crane Cosmetics's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this projectis modified internal rate of retum (MIRR). 0-14.10% e 17.989 @ 19.12% e 21.276 if Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should independent project. this Which of the following stanements about the reationship between the Ra and the MIRRs correct? Ostica firm's IRR will be greater than its Me Atica firms IRR will be equal to its MERR typical firm's will be less than its MERR Back to Assignment Attempta: Keep the Highest 4 Attention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more. 7. The NPV and payback period Aa Aa What information does the payback period provide? Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? Year Cash Flow Year 1 $300,000 O $369,202 Year 2 $400,000 $351,621 $316,459 Year 3 $425,000 O $281.297 Year 4 $500,000 which of the following statements indicate a disadvantage of using the discounted payback period for capital buageting dedsions? Check all that apply. 1 The discounted payback period is calculated using net income instead of cash flows. The discounted payback period does not take the project's entire life into account. The discounted payback period does not take the time value of money into account