Down Under Stores is considering an investment with an initial cost of $236,000.In Year 4,the project will require an additional investment and finally,the project will be shut down in Year 7.The annual cash flows for Years 1 to 7,respectively,are projected as $64,000,$87,000,$91,000,−$48,000,$122,000,$154,000,and −$30,000.If all negative cash flows are moved to Time 0 using a discount rate of 13 percent,what is the project's modified IRR?
A)15.44 percent
B)17.67 percent
C)18.54 percent
D)14.91 percent
E)22.08 percent

Question

Quizplus · Accepted Answer

Using a financial calculator or spreadsheet, we can calculate the modified IRR to be 18.54 percent. This takes into account the negative cash flow in Year 4, which is moved to Time 0. The modified IRR is a more accurate measure of the project's profitability because it accounts for the time value of money and the timing of the project's cash flows. Therefore, the best choice is option C with a modified IRR of 18.54 percent.

Down Under Stores Is Considering an Investment with an Initial