q4

4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the sarne rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the lRR. Thus, the modified IRr approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Blue Llama Mining Company is analyzing a profect that requires an initial investment of $3,225,000, The project's expected cash flows are: rate iof teturn tMrRR. Blue Ulama Mining Company's WACC is 7%, and the project has the same risk an the firm's average project. Calculate this project's modified internal rate of return (MIRR): 11,85% 21.81% 12.51Dg 11,19% If Blue Uama Mining Company's managers select projects based on the MiRR criterion, they should the independent aroject. Which of the following staterments about the relationship between the TRR and the 14[RR is correct? A troical firm's IRR wall be greater than its MIRR. A typical fitm's 1RR will be equal to its MIRR. A typical firmi's IPR will be less than its MIRR