A project has a series of non-normal cash flows that result in a terminal value (TV) of $55,000 in 9 years.If the project's initial costs are $22,500,what is your recommendation regarding this project to management (accept/reject)?
A)accept as the MIRR is 20%
B)reject as the MIRR is greater than zero
C)accept as the terminal value is greater than the present value of the costs
D)accept as the MIRR is 10.44%

Question

Quizplus · Accepted Answer

The MIRR (Modified Internal Rate of Return) of the project is given, which is 10.44%. As the MIRR is greater than the required rate of return (which is not given but can be assumed), the project should be accepted. The terminal value being greater than the present value of costs is not enough information to make a decision. Option A is incorrect because a high MIRR alone does not warrant acceptance without comparing it to the required rate of return. Option B is incorrect as a positive MIRR indicates that the project is generating a return higher than the cost of capital, which is a good sign.

A Project Has a Series of Non-Normal Cash Flows That