Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Modified internal rate of return ( MIRR ) The IRR evaluation method assumes that cash flows from the project are reinvested at a rate equal
Modified internal rate of return MIRR
The IRR evaluation method assumes that cash flows from the project are reinvested at a rate
equal to the project's IRR. However, in reality, the reinvested cash flows may not necessarily
generate a return equal to the IRR. Thus, using the modified IRR approach, you can make a more
reasonable estimate of a project's rate of return than the project's IRR can.
Blue Llama Mining Company is analyzing a project that requires an initial investment of $
The project's expected cash flows are:
Blue Llama Mining Company's WACC is and the project has the same risk as the firm's
average project. Calculate this project's modified internal rate of return MIRR
If Blue Llama Mining 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 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.
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 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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started