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

Ask an Expert

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

Write your message here..

Related Questions

Zero-coupon bond, Zero-Coupon Bond is a type of bond gives no periodic inte... Zero-Coupon Bond is a type of bond gives no periodic interest payments, instead is sold at a steep discount from its face value. Due to these bonds these do not pay interest until

syed, risks involved in moving from a project-centric mode to a mix of pro... risks involved in moving from a project-centric mode to a mix of projects and

Minerals, assignment assignment

Pn junction diode, Solving Poisson''s equation find out electric field in t... Solving Poisson''s equation find out electric field in the transition region and show that electric field is maximum at the junction of p-n diode

Asymmetric effect - propeller, Asymmetric Effect In general the axis o... Asymmetric Effect In general the axis of the propeller will be inclined upwards to the direction of flight due to the angle of attack of the aircraft.   This causes the dow

Differentiate crystalline and amorphous materials, Q.   Differentiate cryst... Q.   Differentiate crystalline and amorphous materials? (a)Crystalline solids:  Those solids in which the, ions atoms or molecules in a definite regular repeated

Financial management, Explain and identify the different sources of finance... Explain and identify the different sources of finances which are available to businesses and which sources of finance are internal sources and which are external sources?

Electronics devices and circuits, With the help of circuit diagram and the ... With the help of circuit diagram and the waveforms,explain the working of a negative clipper with positive biasing voltage.also explain the Same concept in series clipper circuit

Fundamentals of financial management, 4-7 DuPont and Net Income Ebersoll Mi... 4-7 DuPont and Net Income Ebersoll Mining has $6 million in sales, its ROE is 12%, and its total assets turnover is 3.2x. The company is 50% equity financed, and it has no preferr

Continuity equation - ducts and nozzles, Continuity equation If we co... Continuity equation If we consider the machine to be an open-ended duct, we find that the mass flow per second will depend on the density of the fluid and the volume flowing