Ch 11: Assignment - The Basics of Capital Budgeting 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 relowested 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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $2,750,000. The project's expected cash flows are: Year Year 1 Year 2 Cash Flow $325,000 -125,000 450,000 450,000 Yes Year Grey Fox Aviation Company's WACCI 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR) 17.424 20:47 Grey Fox Avion Company's managers select projects based on the MIRA criterion, they should this independent project