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 $3,000,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $300,000 -175,000 475,000 475,000 Celestial Crane Cosmetics's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 0-18.85 % 21.83 % 19.10% 20.01%
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 $3,000,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $300,000 -175,000 475,000 475,000 Celestial Crane Cosmetics's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 0-18.85 % 21.83 % 19.10% 20.01%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 11P
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Hello please help me sir with these parts correct
![If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should
Which of the following statements about the relationship between the IRR and the MIRR is correc
A typical firm's IRR will be equal to its MIRR.
A typical firm's IRR will be greater than its MIRR.
A typical firm's IRR will be less than its MIRR
accept
reject
this independent project.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F546a44d1-c497-4038-accd-d9b8adb06bea%2F4bf9e0ef-90cb-461a-bc9f-e0eb17ed785b%2Fd9rqkps_processed.jpeg&w=3840&q=75)
Transcribed Image Text:If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should
Which of the following statements about the relationship between the IRR and the MIRR is correc
A typical firm's IRR will be equal to its MIRR.
A typical firm's IRR will be greater than its MIRR.
A typical firm's IRR will be less than its MIRR
accept
reject
this independent project.
![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 $3,000,000. The project's expected cash flows are:
Year
Year 1
Year 2
Year 3
Year 4
Cash Flow
$300,000
-175,000
475,000
475,000
Celestial Crane Cosmetics's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate
of return (MIRR):
-18.85 %
21.83%
19.10%
20.01%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F546a44d1-c497-4038-accd-d9b8adb06bea%2F4bf9e0ef-90cb-461a-bc9f-e0eb17ed785b%2Fa9orft_processed.jpeg&w=3840&q=75)
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 $3,000,000. The project's expected cash flows are:
Year
Year 1
Year 2
Year 3
Year 4
Cash Flow
$300,000
-175,000
475,000
475,000
Celestial Crane Cosmetics's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate
of return (MIRR):
-18.85 %
21.83%
19.10%
20.01%
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