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
M/s XYZ Ltd manufactures a product “PLVS” at its plant at Meerut, the maximum capacity of which is 200 units per month. Details of raw materials which go into the making of 1 units

determine the ash content in given sample

Question: a) Differentiate between the prime use of a microprocessor and a microcontroller. b) Describe why the design approach of the microcontroller must mirror that of t

The commonly used moulding materials for mould making can be broadly classified into the following two groups :             (a) Metals : Including grey cast iron, steel and an

Vacuum Investment Casting : TITANIUM INVESTMENT CASTING uses lost-wax investment tooling to cast intricate shapes in titanium, zirconium and their alloys. A wax pattern is coa

Syntax and variable in matlab The MATLAB application is designed around the MATLAB terminology. The easiest method to perform MATLAB value is to type it in the Control Screen,

calculate the workdone by a system which contains 10kg of this gas expanding from 1m^3 at temperature of 293k, use the values a=15.7*10Nm^4, b=1.07*10^-2m^3 , R=0.278KJ/Kg-k.

Define the aircraft axes & degrees of freedom. Analyse the different maneuvers that can be done by an aircraft.

im on my final year, My final project is to design a 2 story office building, i was wondering if i can get any help from this website

Here are the budgets of Brandon Surgery Center for the most recent historical quarter (in thousands of dollars): Static Flexible Actual Number of surgeries 1,200 1,300 1,