Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

8. Modified internal rate of return (MIRR) Aa Aa E The IRR evaluation method assumes that cash flows from the project are reinvested at the

image text in transcribed
image text in transcribed
8. Modified internal rate of return (MIRR) Aa Aa E 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: Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: Year Year 1 Year 2 Yea Year Cash Flow $350,000 -175,000 450,000 500,000 cy Fund Fuzzy Button Clothing Company's WACC is 9%, and the project has the same risk Calculate this project's modified internal rate of return (MIRR): O 15.22 Fuzzy Button Clothing 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 15.22% O 21.48% O 17.90% 16.11% If Fuzzy Button Clothing Company's managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method? 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. The IRR method uses the present value of the initial investment to calculate the IRR. The MIRR method uses the terminal value of the initial investment to calculate the MIRR. O The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Contemporary Financial Management

Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao

2nd Edition

0324406363, 978-0324406368

More Books

Students also viewed these Finance questions

Question

What should Sheila have done to avoid interviews like this one?

Answered: 1 week ago