modified internal rate of return mirr, finance, Other Engineering

MODIFIED INTERNAL RATE OF RETURN (MIRR)
This method is a financial analysis to rank alternative investment projects of equal size. This method is modification of internal rate of return modification of internal rate of return method and was used to overcome the short comings of IRR method
MIRR has only one value while IRR has more than one value for projects with alternative cash flows.The IRR methods most important drawback is its assumption that interim cash flows are reinvested at the same rate of return as that of the project that generated it MIRR has resolved this problem (Robert Parrino & David s. Kidwell, 2009).

A. PROBABILITY INDEX:
Under this method investment proposal are evaluated in terms of benefit and cost. It is the ratio of the present value of cash inflow at the required rate of return to the initial cash outflow of the investment (Robert Parrino & David s. Kidwell, 2009).
Probability index is calculated as follows
PI= PV of Cash inflows
Initial cash outflow
Accept Reject rule:
Accept if PI>1
Reject if PI <1
Merits of PI method:
• Time value of money is considered
• It helps in identifying the profitability of a project.
• It helps in ranking the project, as under this method it is possible to calculate the amount of value created per unit of investment.

B. DISCOUNTED PAYBACK PERIOD METHOD (DPBP):
Under discounted payback period method cash flows are discounted at the present value and considered the number of periods taken in recovering the initial investment. This method does not consider the cash flow that occurs after the payback period (Harold Bierman, Seymour Smidt, 2006).
Accept Reject Rule:
The project with lowest payback period is accepted and the one with the highest payback period is rejected (Robert Parrino & David s. Kidwell, 2009).
Merits:
1. Simple and easy to calculate.
2. Time value of money is not considered.
De-merits:
It does not consider the entire cash flow as it takes cash flow only till the outflow is recovered.
Posted Date: 2/6/2012 10:35:36 PM | Location : United States







Related Discussions:- modified internal rate of return mirr, finance, Assignment Help, Ask Question on modified internal rate of return mirr, finance, Get Answer, Expert's Help, modified internal rate of return mirr, finance Discussions

Write discussion on modified internal rate of return mirr, finance
Your posts are moderated
Related Questions
design a connectivity diagram for a 7.3 m satellite antenna

Evolutionary Methods Optimization methods based upon natural or biological processes Need to be able to parameterise a solution and determine a cost function (good or bad

how to prepare assignment note on culverts in between 4 to 6 pages


Explain how a Q-meter can be used to measure resistance inductance and capacitance??

analyse modelling for safe home security system

draw diagonal scale of rf 1/500 and show 57.5m on it

i want to take your kelp in writing the research paper, which can be published in reputed international journal.

What Is Inflation? In economic terms, blowing up is the development of the costs of products or solutions in the given economic climate over a time period. As the costs increase

Flow Solver The flow solver of FP utilises data produced by the grid generator, together with data read from an input file named FLOW.DAT, and proceeds to calculate the solutio