4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
4. Modified internal rate of return (MIRR) 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: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $2,500,000. The project's expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -175,000 Year 3 450,000 Year 4 475,000 Celestial Crane Cosmetics's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): -13.95% 26.09% 23.61% 22.37% If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements about the relationship between the IRR and the MIRR is correct? A typical firm's IRR will be greater than its MIRR. A typical firm's IRR will be equal to its MIRR. A typical firm's IRR will be less than its MIRR. 4. Modified internal rate of return (MIRR) 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: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $2,500,000. The project's expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -175,000 Year 3 450,000 Year 4 475,000 Celestial Crane Cosmetics's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): -13.95% 26.09% 23.61% 22.37% If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements about the relationship between the IRR and the MIRR is correct? A typical firm's IRR will be greater than its MIRR. A typical firm's IRR will be equal to its MIRR. A typical firm's IRR will be less than its MIRR.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Shown below is information from the financial reports of Knauss Supermarkets for the past few years. Instructions a. Calculate the following statistics for Knauss Supermarkets (round your answers to...
-
The following list of events occurred in the first month of business at a local auto parts supplier. Indicate which of the events are accounting events and provide a short justification for your...
-
(i) Give a recursive definition for the set ODD = {1 3 5 7 . . . }. (ii) Give a recursive definition for the set of strings of digits 0, 1, 2 , 3, . . . 9 that cannot start with the digit 0.
-
For each description of a cost change in items a through \(g\), indicate whether the cause is due to (1) underlying cost behavior, (2) inflation or deflation, (3) supply or supplier cost adjustments,...
-
Albertson Furniture Company is a retailer of home furnishings. It currently has stores in three cities' San Francisco, Los Angeles, and Phoenix. Operating data for the three stores in 2012 were as...
-
User Sunland Company Bank Reconciliation August 31 Cash balance per bank Add v Deposits in transit Add v Interest earned Deposits in transit Service charge Less Deposits in transit Less Cash balance...
-
Consider the group G = {1,-1,1,-i} with complex multiplication as the oper- ation. Find the Cayley (multiplication) table of G. Furthermore, explain which group G must be isomorphic to amongst our...
-
The article Understanding the impact on climate change of convenience food: Carbon footprint of sandwiches analyzed data of 24 commercially available (i.e., ready-made) sandwiches with regard to...
-
What is your strategic focus for early growth? How do you leverage what you do really well? What are some possible peripheral growth opportunities for later in your ventures life?
-
The Net National Income Per Capita, 2017, published by Statista, showed national per capita income (national income divided by total population, in 000 USD) by country. For Asia, some of the values...
-
What type of venture would you want to create? Do you want to have primarily a social mission or an economic mission? Why?
-
What provisions should you have in your shareholders agreement? What kind of salary will you draw? When will you draw it? What provisions do you have for disposition of equity (e.g., death,...
-
9 The adjusted trial balance of Jason, Moore and Olsen partnership on June 30, 2016 was as follows: outside suppliers were paid. It was also agreed that P50,000 cash be restricted for The partners...
-
What are the four types of poultry production systems? Explain each type.
-
To generate economic growth, a society must produce _________ consumer goods and _________ capital goods in the present.
-
Advancements in _________, improvements in _________, or new _________ could all lead to outward shifts of the production possibilities curve.
-
Resources tend to be specialized, so we lose some of their productivity when we transfer those resources from what they are relatively _________ at producing to something they are relatively...
Study smarter with the SolutionInn App