The modified internal rate of return assumes: A. Inflows are invested at the tra

Question

The modified internal rate of return assumes:
A. Inflows are invested at the traditional interest rate of return. B. Inflows are reinvested at the cost of capital C. Outflows must be funded with debt D. Outflows must be funded with equity The modified internal rate of return assumes:
A. Inflows are invested at the traditional interest rate of return. B. Inflows are reinvested at the cost of capital C. Outflows must be funded with debt D. Outflows must be funded with equity
A. Inflows are invested at the traditional interest rate of return. B. Inflows are reinvested at the cost of capital C. Outflows must be funded with debt D. Outflows must be funded with equity

Explanation / Answer

Correct answer is B, the modified internal rate of return (MIRR) assumes that the possitive cash flows are reinvested at the cost of capital. The initial capital therfore for the reinvestment is financed at the cost of financing of the firm. It also depicts the more accurate cost and the ability to generate the profit for the firm.

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