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    Question

    Two new annuity-oriented projects are considered:

    Project A: €1 m cost, 5-year CFs of €300k with MIRR 14%. Project B: €1 m cost, front-loaded CFs of €400k then lower, MIRR 13%. WACC = 10%, both positive NPVs, mutually exclusive. Which project should be chosen and why?
    A A – higher MIRR Correct Answer Incorrect Answer
    B B – front-loaded cash flows reduce risk Correct Answer Incorrect Answer
    C A – MIRR better for reinvestment assumptions Correct Answer Incorrect Answer
    D B – earlier paybacks matter Correct Answer Incorrect Answer
    E Cannot decide without NPV Correct Answer Incorrect Answer

    Solution

    For mutually exclusive projects, NPV drives decisions, not MIRR. Without NPV comparison, selection based on MIRR alone is insufficient.

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