Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. the irr evaluation method assumes that cash flows

The IRR evaluation method assumes that cash flows from the project are reinvested at the...

50.1K

Verified Solution

Question

Accounting

image

image

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: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,225,000. The project's expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 - 150,000 Year 3 475,000 Year 4 500,000 Green Caterpillar Garden Supplies Inc.'s WACC is 10%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 29.77% O-11.80% 32.60% 25.52% If Green Caterpillar Garden Supplies Inc.'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 less than its MIRR. A typical firm's IRR will be equal to its MIRR. A typical firm's IRR will be greater than its MIRR

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

How did Spanish missionaries serve as conquerors for the Spanish empire?

Psychology
Q

Describe the matrix organizational form? What are its advantages and disadvantages? Discuss the importance of negotiations...

General Management
Q

Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers....

Accounting
Q

O is defined as preventing microbes or toxins from attaching to our cells O is...

Biology
Q

1 What is the purpose of phosphorylation and dephosphorylation and what is the difference between...

Biology
Q

Please explain the e and f part in detail What is the e ffect of...

Physics
Q

Labor statistics indicate that 77 of all U S cashiers and servers are women A...

Statistics
Q

14 Solve the system of equations Be sure to show all work and to check...

Algebra
Q

Determine the breakeven contribution margin ratio for a company with a fixed overhead of $127,000...

Accounting
Q

Simone Ltd issued 20 000 shares with an issue price of $2.00 per share. The...

Accounting
Q

Grouper Company, a manufacturer of small tools, provided the following information from its accounting records...

Accounting
Q

5.State the advantages that may be derived from a sound system of cost accounting

Accounting