Question

Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:

Year	X	Y
0	−$2,000	−$2,000
1	200	2,000
2	600	200
3	800	100
4	2,400	75

The projects are equally risky, and the firm's required rate of return is 12 percent. You must make a recommendation, and you must base it on the modified IRR. What is the MIRR of the best project?

	a.	12.00%
	b.	12.89%
	c.	11.46%
	d.	13.59%
	e.	21.29%

Answer 1

Answer: e) 21.29%

The best project of the two is one which has a higher NPV. This project adds a higher value to the firm.