A project has a series of non-normal cash flows that result in a terminal value (TV) of $120,000 in 5 years.If the project's initial costs are $33,000,what is your recommendation to management regarding this project (accept/reject)?
A)accept as the MIRR is 29.50
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 38.95%

Question

Quizplus · Accepted Answer

The MIRR (Modified Internal Rate of Return) is a measure of the profitability of a project that considers the time value of money and assumes that cash flows are reinvested at a certain rate. A MIRR of 29.50 indicates that the project is expected to generate a return of 29.50% per year, which is higher than the cost of capital (the rate of return required to justify the investment). Therefore, the project should be accepted. The fact that the terminal value is greater than the present value of the costs is also a positive sign, but it's not sufficient to justify the decision on its own. Similarly, the fact that the MIRR is greater than zero doesn't provide enough information to make a recommendation. The MIRR of 38.95% mentioned in choice D is incorrect, as it's not provided in the question.

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