Project A, which costs of $1,000 to purchase, will generate net cash inflows equal to $500 at the end of each of the next three years. The project's required rate of return is 10 percent. What are the project's internal rate of return (IRR) and modified internal rate of return (MIRR)?

Question

Quizplus · Accepted Answer

To calculate IRR, we need to find the discount rate at which the present value of future cash inflows equals the initial investment. Using a financial calculator, we find that the IRR for this project is 23.4%.

To calculate the MIRR, we need to find the discount rate that equates the present value of future cash inflows with the terminal value of all cash outflows, assuming that all intermediate cash flows are reinvested at the cost of capital. Using a financial calculator, we find that the MIRR for this project is 18.3%.

Therefore, the best choice is C.

Project A, Which Costs of $1,000 to Purchase, Will Generate