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.
A) A project's MIRR is always less than its regular IRR.
B) If a project's IRR is greater than its cost of capital, then the MIRR will be less than the IRR.
C) If a project's IRR is greater than its cost of capital, then the MIRR will be greater than the IRR.
D) To find a project's MIRR, we compound cash inflows at the IRR and then discount the terminal value back to t = 0 at the cost of capital.
E) A project's MIRR is always greater than its regular IRR.

Question

Quizplus · Accepted Answer

The Modified Internal Rate of Return (MIRR) considers the cost of capital for reinvestment of cash flows, which can lead to a different value than the IRR, especially when the IRR is higher than the cost of capital. In such cases, the MIRR can be less than the IRR because it assumes reinvestment at the project's cost of capital, which is more conservative and often lower than the IRR.

Which of the Following Statements Is CORRECT? Assume That the Project