Concept explainers
IRR:
IRR is also called as
Decision for IRR rule:
MIRR:
MIRR is also called as modified internal rate of return. Under MIRR cash flows are reinvested at cost of capital. IRR assumes cash flows are reinvested at IRR, which is unrealistic, this was mitigated by the MIRR.
Calculate the MIRR as follows:
Decision for MIRR rule:
Cost of the project is $90,000 and cash inflows are $54,000 for two years. Cost of capital is 9%.
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