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

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

70.2K

Verified Solution

Question

Finance

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 $400,000. The project's expected cash flows are: Year Cash Flow Year 1 $350,000 Year 2 -200,000 Year 3 Year 4 500,000 400,000 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): 24.51% O 25.80% 20.64% 29.67% If Green Caterpillar Garden Supplies Inc.'s managers select projects based on the MIRR criterion, they should this independent project

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: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students