The modified internal rate of return is specifically designed to address the problems associated with which one of the following?
A)Mutually exclusive projects
B)Unconventional cash flows
C)Long-term projects
D)Negative net present values
E)Crossover points

Question

Quizplus · Accepted Answer

The modified internal rate of return (MIRR) is specifically designed to address the problems associated with unconventional cash flows, such as multiple changes in the direction of cash flows, and it assumes reinvestment at a rate different from the project's internal rate of return. MIRR is calculated using the same formula as IRR, but instead of assuming that cash flows are reinvested at the project's internal rate of return, it assumes that cash flows are reinvested at a rate equal to the firm's cost of capital. MIRR is especially useful for comparing projects with different cash flow patterns and for identifying the optimal project among mutually exclusive projects. Therefore, option B is the best choice.

The Modified Internal Rate of Return Is Specifically Designed to Address