Question

Modified internal rate of return: handles both the multiple IRR problem and the mutually exclusive projects...

Modified internal rate of return:

handles both the multiple IRR problem and the mutually exclusive projects problem.

handles the mutually exclusive projects problem.

does not requires the use of a discount rate.

does not handle the reinvestment rate assumption problem.

handles the multiple IRR problem .
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Correct answer is -

handles both the multiple IRR problem and the mutually exclusive projects problem

Modified internal rate of return assumes that the re - investment is done ar discount rate or some predetermined specified rate of return. Hence, MIRR does away with unrealistic reinvestment assumption of IRR.

as the underlying assumption regarding reinvestment rate is same, NPV and MIRR will give same results even in case of mutually exclusive projects.

Also, MIRR gives only one solution and it handles multiple IRR problem.

Other options are incorrect as -

MIRR requires the use of a discount rate. First future values of cashflows are calculatd with is calculated on the basis of discount rate.

and MIRR handle the reinvestment rate assumption problem.

Hope it helps!

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Explain the Concept Of Internal Rate Of Return (IRR) and explain the methodology’s flaws with mutually...
Explain the Concept Of Internal Rate Of Return (IRR) and explain the methodology’s flaws with mutually exclusive projects and nonconventional cash flows.
The two fatal flaws of the internal rate of return rule are     A. arbitrary determination of...
The two fatal flaws of the internal rate of return rule are     A. arbitrary determination of a discount rate and failure to consider initial expenditures.     B. arbitrary determination of a discount rate and failure to correctly analyze mutually        exclusive investment projects.     C. arbitrary determination of a discount rate and the multiple rate of return problem.     D. failure to consider initial expenditures and failure to correctly analyze mutually       exclusive investment projects.
4. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound...
4. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000. The company has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to...
Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the...
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: Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $500,000. The project’s...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Project A Project B Project C Project D Project E Project F Project G NPV= $4,711 ($711) ($657) $334 $9,842 $7,360 ($3,224) IRR= 44.51% 5.47% 8.06% 12.98% 22.56% 17.19% 5.47% MIRR= 25.23% 7.50% 8.97% 11.57% 16.26% 13.70% 7.50% PI= 2.178 0.822 0.945 1.028 1.394 1.294 0.871 The discounting rate (r)...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Criteria:                Project_A         Project_B             Project_C         Project_D          Project_E               Project_F             Project_G NPV= $137,083 $31,290 $6,016 $7,647 ($584) $12,521 $9,214 IRR= 31.80% 48.34% 12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59% 9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 1.00 2.25 1.92 The discounting rate...
A) DO NOT calculate IRR for projects that are: Conventional Nonconventional Independent Mutually exclusive B) What...
A) DO NOT calculate IRR for projects that are: Conventional Nonconventional Independent Mutually exclusive B) What is the internal rate of return for this project? Year Cash Flows 0 -1,000,000 1 300,000 2 300,000 3 300,000 4 600,000
8. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from...
8. 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 : Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $3,225,000....
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Criteria:                Project_A         Project_B             Project_C         Project_D          Project_E               Project_F             Project_G NPV= $137,083 $31,290 $6,016 $7,647 ($584) $12,521 $9,214 IRR= 31.80% 48.34% 12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59% 9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 0.999 2.25 1.92 The discounting rate...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Criteria:                Project_A         Project_B             Project_C         Project_D          Project_E               Project_F             Project_G NPV= $137,083 $31,290 $6,016 $7,647 ($584) $12,521 $9,214 IRR= 31.80% 48.34% 12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59% 9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 0.999 2.25 1.92 The discounting rate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT