Question: Look again at the project cash flows in Practice Question 6. Calculate the modified IRR as defined in footnote 5 in Section 5.3. Assume the

Look again at the project cash flows in Practice Question 6. Calculate the modified IRR as defined in footnote 5 in Section 5.3. Assume the cost of capital is 12 percent. Now try the following variation on the modified IRR concept. Figure out the fraction x such that x times C1 and C2 has the same present value as (minus) C₃.

Define the modified project IRR as the solution of

Now you have two modified IRRs. Which is more meaningful? If you can’t decide, what do you conclude about the usefulness of modified IRRs?

C2 1.12 1.12 1.12 G +

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