Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 8 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and three years,respectively.
Use the MIRR decision rule to evaluate these projects; which one(s)should be accepted or rejected?

A)Accept both A and B
B)Accept neither A nor B
C)Accept A, reject B
D)Reject A, accept B

Question

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 8 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and three years,respectively.
Use the MIRR decision rule to evaluate these projects; which one(s)should be accepted or rejected?

A)Accept both A and B 
B)Accept neither A nor B 
C)Accept A, reject B 
D)Reject A, accept B

Quizplus · Accepted Answer

To use the MIRR decision rule, we must first calculate the MIRR for each project:

MIRR(A) = 11.79%

MIRR(B) = 17.22%

Since both projects have a positive MIRR, they are both acceptable. However, we must choose between them based on which one has a higher MIRR. Project B has a higher MIRR than Project A, so we should accept Project B and reject Project A. Therefore, the answer is D, reject A, accept B.

Suppose Your Firm Is Considering Two Mutually Exclusive,required Projects with the Cash