The expected IRR of an investment opportunity is always greater than the expected MIRR of that...

The expected IRR of an investment opportunity is always greater than the expected MIRR of that investment opportunity. Agree or disagree, and why?

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Expert Solution

IRR (Internal rate of return) is the rate at which Net Present value becomes zero. It is the minimum return required to recover our cost incurredd on the project.

MIRR refers to the desired return which an enterprise requires from a project. MIRR will always lead to positive NPV for an entity.

While making decision about a project, an entity will only accept the project in case it is profitable for the entity. In other words, a project will only be accepted if NPV is positive. For NPV to be positive, MIRR must be greater than the IRR.

Therefor, it is not TRUE and we disagree with the statement that the expected IRR of an investment opportunity is always greater than the expected MIRR. In reality, it is opposite, i.e expected MIRR is greater than the expected IRR of the project.

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jeff jeffy answered 1 year ago

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