5. 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 retum equal to the IRR. Thus, the modified IR approach makes a more reasonable assumption other than the project's RR. Consider the following situation: Blue Lama Mining Company is analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flows are: Year Year 1 Cash Flow $325,000 -125,000 400,000 425,000 Year 3 Year 4 Blue Llama Mining Company's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 19.84% 16.44% O 17.36% O 15.53% Blue Llama Mining Company'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 MERR is correct? A typical firm's IRR will be greater than its MERR. O A typical firm's I will be less than its MIR A typical firm's IRR will be equal to its MIRR