The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of

Question:

The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of capital of 11 percent. The project being analyzed is as follows ($26,000 investment):

YearCash Flow

1 .......$12,000

2 ....... 11,000

3 ....... 9,000

a. What is the modified internal rate of return? An approximation from Appendix B is adequate. (You do not need to interpolate.)

b. Assume the traditional internal rate of return on the investment is 17.5 percent. Explain why your answer in part a would be lower.

Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...