Question

What is the reasoning for calculating a MIRR instead of just the IRR? Are there any circumstances in which the two methods provide the same solution?

Answer 1

Answer : The reason behind calculating MIRR instead of just IRR is; I RR assume that interim positive cashflow are reinvested at the rate of Return as that of the project that generated them . This is usually a unrealistic fact To overcome the drawback or limitation., a new technique emerges i e MIRR: under MIRR the earlier cashflow are reinvested at firm's rate of return and finding out the terminal value.MiIRR is the rate at which present value of terminal value equal to outflow. . MIRR is generally lower than IRR

Answen 11R neason The reason behind calculating MIRR instored of just IRR is; I RR assume that intenim posaline cashflows one neinuested at the neute of Retung as that of the project that genenated them . This is usually a annealistic facta To overcome the drawback on limitation. a new technique emerges i de MIRR: unden MIRR the earlien cashflows are neinvested at firm's nate of return and finding out the tenminal value. mikr of the rate at which present nlalue of terminal Xalue equal to outflow . MIRR is genercilily lowen than IRRA