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Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $2,750,000. The...

Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $2,750,000. The project’s expected cash flows are:

Year

Cash Flow
Year 1 $350,000
Year 2 –125,000
Year 3 400,000
Year 4 500,000

Cute Camel Woodcraft Company’s WACC is 9%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR):

19.63%

-16.48%

27.71%

25.40%

If Cute Camel Woodcraft Company’s managers select projects based on the MIRR criterion, they should (accept/reject) 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 equal to its MIRR.

A typical firm’s IRR will be less than its MIRR.

A typical firm’s IRR will be greater than its MIRR.

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