Which one of the following is specifically designed to compute the rate of return on a project that has unconventional cash flows?
A)Average accounting return
B)Profitability index
C)Internal rate of return
D)Indexed rate of return
E)Modified internal rate of return

Question

Quizplus · Accepted Answer

The Modified Internal Rate of Return (MIRR) is specifically designed to compute the rate of return on a project that has unconventional cash flows. The MIRR is a modified version of the Internal Rate of Return (IRR) which assumes that all intermediate cash flows are reinvested at the cost of capital rather than at the project's own rate of return. This makes the MIRR more appropriate for projects with unconventional cash flows, such as those with multiple sign changes or non-conventional timing of cash flows. Therefore, the best choice is E, the Modified Internal Rate of Return.

Which One of the Following Is Specifically Designed to Compute