Question 8

(a) Explain what is meant by the Internal Rate of Return (IRR) and give two advantages and two disadvantages of the Internal Rate of Return. Consider a project that calls for a cash outflow of $60 today, a cash inflow of $155 in one year, and a cash outflow of $100 in two years. The required rate of return on the project is 20%. Use the discounting approach, the reinvestment approach, and the combination approach to calculate the Modified Internal Rate of Return (MIRR)