Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision rule?
A)Discounted payback
B)Net present value
C)Modified internal rate of return
D)Profitability index

Question

Quizplus · Accepted Answer

The capital budgeting technique that converts a project's cash flows using a consistent reinvestment rate is the modified internal rate of return (MIRR). Unlike the IRR, which assumes reinvestment of cash inflows at the project's internal rate of return, the MIRR assumes reinvestment at a consistent rate. This provides a more realistic measure of a project's potential profitability and is therefore a better choice. The other options, discounted payback, net present value, and profitability index, do not involve converting cash flows using a consistent reinvestment rate.

Which of the Following Is a Capital Budgeting Technique That