Consider the following situation:

Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $550,000. The projects expected cash flows are:

Year	Cash Flow
Year 1	$325,000
Year 2	175,000
Year 3	450,000
Year 4	475,000

1. Green Caterpillar Garden Supplies Inc.s WACC is 7%, and the project has the same risk as the firms average project. Calculate this projects modified internal rate of return (MIRR):

a. 16.94%

b. 17.83%

c. 19.61%

d. 15.16%

2. If Green Caterpillar Garden Supplies Inc.s managers select projects based on the MIRR criterion, they should (accept/reject??) this independent project.

3. Which of the following statements best describes the difference between the IRR method and the MIRR method?

a. 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.

b. 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.

c. 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.