Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the MIRR decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c }
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \
\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$ 1,100 & \$ 2,000
\end{array}$$
A) MIRR = 13.59 percent, accept the project
B) MIRR = 7.96 percent, reject the project
C) MIRR = 7.19 percent, reject the project
D) MIRR = 12.58 percent, accept the project

Question

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the MIRR decision to evaluate this project; should it be accepted or rejected?
$$\begin{array} { l c c c c c c c c c } 
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \
\text { Cash Flow } & - \$ 5,000 & \$ 1,200 & \$ 1,400 & \$ 1,600 & \$ 1,600 & \$  1,100 & \$ 2,000
\end{array}$$
A) MIRR = 13.59 percent, accept the project
B) MIRR = 7.96 percent, reject the project
C) MIRR = 7.19 percent, reject the project
D) MIRR = 12.58 percent, accept the project

Quizplus · Accepted Answer

The Modified Internal Rate of Return (MIRR) is calculated by finding the future value of the positive cash flows at the project's end at the required rate of return, finding the present value of the negative cash flows at the required rate of return, and then solving for the interest rate that equates these two values. Given the cash flows and the required rate of return of 8 percent, the MIRR for this project is 13.59 percent, which is higher than the required rate of return. Therefore, the project should be accepted.

Suppose Your Firm Is Considering Investing in a Project with the Cash