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The IRR. evaluation method assumes that cash fows from the project are reinvested at the same rate equal to the IRR. However, in reality the
The IRR. evaluation method assumes that cash fows from the project are reinvested at the same rate equal to the IRR. However, in reality the reifivested 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 foliowing situation: Grey Fox.Aviation Company is analyzing a project that requires an initial investment of $550,000. The project's expected cash flows are: Grey Fox Aviation Company's WACC is 10%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rote of return (MIRR): 19.76% 17.78% 18,77% 16.80% Which of the following stotements bes describes the difference between the tRR method and the MeraR method? The ira method uses the present value of the initial imvertment to calculate the TRR. The Mra method ises the terminal value of the intial investment to calculote the Mra. The thit method assumes thet coth flows are reinvested at a rate of retum equal to the laR. The MrRR method assumes that cash flows are reinvested et of rete of return equal to the cost of caplat The IRR method uses only cath inhowe to calculote the tra. The MreR method wses both cash inflows and cash outfows to calculate the Mirk
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