Lithium,Inc.is considering two mutually exclusive projects,A and B.Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two.Project B costs $120,000 and is expected to generate $64,000 in year one,$67,000 in year two,$56,000 in year three,and $45,000 in year four.Lithium,Inc.'s required rate of return for these projects is 10%.The modified internal rate of return for Project A is
A) 19.19%.
B) 24.18%.
C) 26.89%.
D) 29.63%.

Question

Quizplus · Accepted Answer

The Modified Internal Rate of Return (MIRR) considers the cost of the project and the final value of cash inflows reinvested at the firm's cost of capital. For Project A, calculate the future value of cash inflows at the required rate of return (10%), then use the MIRR formula: MIRR = (FV of inflows / PV of outflows)^(1/n) - 1, where n is the number of periods. Calculating gives an MIRR of approximately 24.18%.