Which of the following is NOT a valid method of modifying cash flows to produce a MIRR? A. Turn multiple negative cash flows into a single negative cash flow by summing all negative cash flows over the project's lifetime. B. Leave the initial cash flow alone and compound all of the remaining cash flows to the final period of the project. C. Discount all of the negative cash flows to the present and compound all of the positive cash flows to the end of the project. D. Discount all of the negative cash flows to time 0 and leave the positive cash flows alone.

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Business

Frank Ochoa

26 September, 02:52

Which of the following is NOT a valid method of modifying cash flows to produce a MIRR? A. Turn multiple negative cash flows into a single negative cash flow by summing all negative cash flows over the project's lifetime. B. Leave the initial cash flow alone and compound all of the remaining cash flows to the final period of the project. C. Discount all of the negative cash flows to the present and compound all of the positive cash flows to the end of the project. D. Discount all of the negative cash flows to time 0 and leave the positive cash flows alone.

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Seth Trujillo · Answer 1

Answer: the correct answer is A. Turn multiple negative cash flows into a single negative cash flow by summing all negative cash flows over the project's lifetime.

Explanation: MIRR stands for Modified Internal rate of return. If you add up all negative cash flows in just one you are not taking into account a very important variable which is "time". It is not the same if you have a negative cash flow in 2 years than in 5 years.