The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality thereinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumptionother than the project's IRR.Consider the following situation:Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flowsare:YearYear 1Cash Flow$375,000Year 2 -175,000Year 3 400,000Year 4 450,000Cold Goose Metal Works Inc.'s WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internalrate of return (MIRR):O 14.83%O-19.30%O 20.07%13.96%If Cold Goose Metal Works Inc.'s managers select projects based on the MIRR criterion, they shouldthis independent project.

Step 1: The calculation of the MIRR AB1YearCashflow20 $ (3,000,000.00)31 $ 375,000.00 42 $…

Answered: The IRR evaluation method assumes that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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he 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 $3,000,000. The project’s expected cash flows are: Year Cash Flow Year 1 $275,000 Year 2 –150,000 Year 3 475,000 Year 4 400,000 Green Caterpillar Garden Supplies Inc.’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): 15.88% 14.21% 18.39% -20.35% If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion, they should this independent project.…
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: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $550,000. The project’s expected cash flows are: Year Cash Flow Year 1 $275,000 Year 2 –100,000 Year 3 425,000 Year 4 475,000 Cold Goose Metal Works Inc.’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): 19.53% 15.62% 16.60% 20.51% If Cold Goose Metal Works Inc.’s managers select projects based on the MIRR criterion, they should this independent project. Which of the following…
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 $2,750,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Celestial Crane Cosmetics's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 19.45% Cash Flow $350,000 -125,000 500,000 425,000 O -16.52% O24.02% O 20.59% 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 correct? O A typical firm's IRR will be…
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 $600,000. The project’s expected cash flows are: Year Cash Flow Year 1 $275,000 Year 2 –125,000 Year 3 475,000 Year 4 425,000 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): 16.50% 14.03% 14.85% 15.68% If Cute Camel Woodcraft Company’s managers select projects based on the MIRR criterion, they should______________this independent project. accept reject Which of the following statements best describes the…
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 $450,000. The project's expected cash flows are: Year Cash Flow Year 1 $350,000 Year 2 -100,000 Year 3 450,000 Year 4 425,000 Cute Camel Woodcraft Company's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified Internal rate of return (MIRR): ○ 30.66% O 25.55% 24.27% O 29.38% If Cute Camel Woodcraft Company's managers select projects based on the MIRR criterion, they should Which of the following statements best describes the difference between the IRR method and the MIRR method? this independent…
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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $400,000. The project’s expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 –150,000 Year 3 400,000 Year 4 425,000 Grey Fox Aviation Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 25.38% 24.11% 29.19% 26.65% Points: Close Explanation Explanation: If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should selector 1…
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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $325,000 Year 2 –100,000 Year 3 475,000 Year 4 475,000 Q1. Grey Fox Aviation 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): 33.79% 29.18% -11.55% 27.65% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should Q2. ______ this…
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: Grey Fox Aviation 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 $275,000 Year 2 –175,000 Year 3 500,000 Year 4 400,000 Grey Fox Aviation Company’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): 15.62% -17.89% 20.51% 22.46% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements…
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: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $350,000 Year 2 –125,000 Year 3 450,000 Year 4 450,000 Green Caterpillar Garden Supplies Inc.’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): -12.63% 26.46% 30.64% 29.24% If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion,…
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 Celestial Crane Cosmetics's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O-20.94% O 17.35% Cash Flow $275,000 -125,000 400,000 450,000 O 19.00% O 15.69%
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: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $500,000. The project’s expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 –100,000 Year 3 450,000 Year 4 450,000 Green Caterpillar Garden Supplies Inc.’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): 22.81% 18.25% 21.67% 20.53%
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. Select one: a. The lower the WACC used to calculate it, the lower the calculated NPV will be. b. If a project's NPV is greater than zero, then its IRR must be less than zero. c. The NPV of a relatively low-risk project should be found using a relatively high WACC. d. A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC. e. If a project's NPV is less than zero, then its IRR must be less than the WACC.

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