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12. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. Howevec, in reality the reinvested 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 situotion: Green Caterpiliar Garden Supplies Inc. is analyzing a project that requires an initial investment of 5600,000 . The project's expected cash flows are: \begin{tabular}{ll} Year & Cash Flow \\ \hline Year 1 & $275,000 \\ Year 2 & 150,000 \\ Year 3 & 425,000 \\ Year 4 & 400,000 \end{tabular} Green Caterpiliar Garden Supplies incis WACC is 74 , and the project has the same risk as the firm's average project, Calculate this project's modified internal rate of return (Minh): 13. 6454 14:29% 11.69\% 12.99% If Green Caterpilar Garden Supplies Inci's managers select projects based on the Mtar criterion, they abouid this independent project. Which of the following statements best describes the difference betacen the trR method and the MLRR method? The IRG mathod uses only cash inflows to calculate the IRR. The Mind method uset both cosh inflows and cash outfiows to calculate the Minir. The tAR thethed uies the present valie of the initial investment to calculate the tha. The Mied methed uses the terminal volue of the initial irvestment to caicuiate the Marri. The Inh method aprumes thst, cash fows are reinvested at a rate of reburn equal to the 1ag. The Mark mothod astumes that cash fiows. are reinvested at a rate of return ecual to the cost of caprial