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The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, 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 situation: Blue Llama Mining Company is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 -100,000 Year 3 425,000 Year 4 475,000 average project. Calculate this project's modified internal Blue Llama Mining Company's WACC is 7%, and the project has the same risk as the rate of return (MIRR): O 30.50% O 22.18% O 23.57% O 27.73% If Blue Llama Mining Company's managers select projects based on the MIRR criterion, they should accept this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method
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