9. Cash flow patterns and the modified internal rate of return calculation

Henderson Manufacturing Inc. is analyzing a project with the following projected cash flows:

Year	Cash Flow
0	-$1,324,800
1	300,000
2	450,000
3	546,000
4	360,000

This project exhibits cash flows.

Hendersons desired rate of return is 7.00%. Given the cash flows expected from the company's new project, compute the projects anticipated modified internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)

6.70%

7.53%

8.37%

10.04%

Hendersons managers are generally conservative, and select projects based solely on the projects modified internal rate of return (MIRR). Should the companys managers accept this independent project?

No

Yes

Youve just learned that the analyst who assembled the projects projected cash flow information used incorrect data. Youve reexamined the source data and determined that the revised annual cash flow information should be:

Year	Cash Flow
0	-$1,317,500
1	350,000
2	-400,000
3	480,000
4	320,000

Again, if Hendersons desired rate of return is 7.00%, then the projects revised modified internal rate of return (MIRR) should be . (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)

If, again, Hendersons managers continue to exhibit their general conservatism and select their investment projects based only on the projects MIRR, should they accept the project?

No

Yes