Home Dcor & More is considering a proposed project with the following cash flows

Question

Home Dcor & More is considering a proposed project with the following cash flows. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why

or why not?                    

Year0 CashCash flow = -375,000

Year1Cash Flow = 104,500

Year2 cash flow = - 35,600

Year3 cash flow = 244,700

Year 4Cash Flow = 271,000

A. Yes; The MIRR is 14.78 percent. B. Yes; The MIRR is 15.64 percent. C. No; The MIRR is 12.91 percent. D. No; The MIRR is 14.78 percent. E. No; The MIRR is 15.64 percent

Explanation / Answer

Year0 Cash flow = -375,000 +271,000/1.16^4 =-$225329.11

Year4 Cash flow = 104,500*1.16^3 + - 35,600*1.16^2 + 244,700*1.16^1 =$399062.27

-$225329.11 + $399062.27/(1+MIRR)^4 = 0

MIRR = 14.78%

D. No; The MIRR is 14.78 percent

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