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 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: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $2,500,000. The project's expected cash flows are: Cash Flow Year 1 350,000 Year 2 -100,000 Year 475,000 Year 4 500,000 Celestial Crane Cosmetics's WACC S7, and the project has the sime risk as the firm's average of return (MIR) 25.09% 29.27% Year Cash Flow Year 1 $350,000 Year 2 Year) -100,000 475,000 500,000 Year 4 Celestial Crane Cosmetics's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 25.09% 29.27% 32.06% -13.67% If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements about the relationship between the IRR and the MIRR is correc reject A typical firm's ERR will be equal to its MERR accept A typical firm's RR will be greater than its MIRR. A typical firm's RR will be less than its MIRR