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 flowis 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: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of 5400,000 . The project's expected cash flows are: Colestial Crane Commetics's wACC is 7%, and the project has the same riak as the firm's average project. Calculste this project's modified intemai rate of eturn (MiAR): 31.01% 25.644 21.96% 24.55% If Celestial Crane Cosmeticis managers select projecta based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IPR method and the MuRR method? The Ifir method assumes that cash flons are reinvested at a rate of return equal to the 1RR. The MiRR method ansumes that cash flows are reinvested at a rate of teturn equal to the cost of capital. The IRR mothod unes snly cash inflomen to calculate the TRR. The MIRR method uses both cash inflown and carh outfloins to calculate the Muke The IKR method uses the presert value of the initial imestment to alailate the IRR. The MIRR method vies the terminal value of the intial Invermert tas caloulate the MIar