Which of the following statements is not correct? a. The modified internal rate of return is...

Which of the following statements is not correct?

a. The modified internal rate of return is similar to the realized compound yield method used with bonds.

b. The modified internal rate of return attempts to correct the reinvestment rate assumption implicit with the internal rate of return method.

c. The modified internal rate of return takes the outflows back to the present time and the inflows to the terminus of the project.

d. The modified internal rate of return solves the multiple root problem associated with the internal rate of return method.

e. The modified internal rate of return only takes into account cash flows that are produced prior to the payback period.

____________________________________________________________________________________________________________

Assuming that you have non-reproducible projects with different lives, which of the following statement is the most correct?

a. Choose the project with the highest IRR.

b. Choose the project with the highest NPV.

c. Choose the project with the highest uniform annual series.

d. Choose the project with the highest replacement chain value.

e. C or D will give you same answer.

Solutions

Expert Solution

1. Option e is not correct

Modified Internal rate of return considers all the cashflows of the project life period. It is not correct that it only consider the cashflows before the payback period.

2. if two projects have unequal lives, we consider uniform annual series or replacement chain value. Which ever is higher, we should consider that project. here both gives same answer.

Option e is correct

jeff jeffy answered 2 years ago

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