Modified IRR (MIRR) Method

The Modified IRR (MIRR) Method

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Question

Which of the following statements is most correct? The modified IRR (MIRR) method:

Answers

A. All of these answers are correct.

B. Calculates a return that is always less than the regular IRR.

C. Overcomes the problem of multiple rates of return.

D. Always leads to the same ranking decision as NPV for independent projects. C

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Explanations

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A. B. C. D.

Explanation

MIRR assumes that cash flows from all projects are reinvested at the cost of capital, while the regular IRR assumes that the cash flows from each project are reinvested at the project's own IRR. The MIRR is a better indicator of profitability because reinvestment at the cost of capital is generally more correct.

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