4. Modified internal rate of return (MIRR) An Aa E 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 retum equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR Consider the following situation: Leeding Engines Ltd. is analyzing a project that requires an initial investment of 500,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 1 Cash Flow $375,000 -200,000 500,000 125,000 Leeding Engines Ltd.'s WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified intemal rate of retum (MIRR): 21.48% 17.18% 23.63% 18.26% 0 this IF Leedling Engines Ltd.'s managers select projects based on the MIRR criterion, they should independent project