Question

Lithium, Inc. is considering two mutually exclusive projecLithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%.The modified internal rate of return for Select one: a. 29.63%. b. 24.18%. c. 26.89%. d. 19.19%.ts, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. The internal rate of return for Project B is Select one:
a. 30.79%.
b. 35.27%.
c. 29.74%.
d. 36.77%.

Answer 1

Answer:

• The modified internal rate of return for PROJECT A:

b. 24.18%

• The internal rate of return for Project B :

b. 35.27%.

Explanation:

The mean difference between the MIRR and the IRR it's that the IRR assumes that the obtained positive cash flows are reinvested at the same rate at which they were generated, while the MIRR considers that these cashflow will be reinvested at the external rate of return, this case 10%.

Project A  Y1             Y2

-$95,000  $65,000   $75,000  

24,18% MIRR  

Project B  -$120,000  

Y 1             $64,000  

Y 2            $67,000  

Y 3            $56,000  

Y 4            $45,000  

TIR 35,27%