The modified internal rate of return is designed primarily to analyze projects that:
A)are financing rather than investing projects.
B)are mutually exclusive.
C)alternate positive,negative,and positive cash flows.
D)have significantly different sizes.
E)have lives in excess of five years.

Question

Quizplus · Accepted Answer

The modified internal rate of return (MIRR) is most useful in analyzing projects with cash flows that alternate between positive, negative, and positive cash flows. MIRR assumes that cash flows are reinvested at a predetermined rate, whereas IRR assumes that cash flows are reinvested at the project's internal rate of return. MIRR is useful for projects where cash inflows are reinvested at a rate different from the project's cost of capital, such as projects with cash flows that are negative in the initial period and positive in the later period. MIRR adjusts for this by assuming that cash flows are reinvested at the project's cost of capital.

The Modified Internal Rate of Return Is Designed Primarily to Analyze