modified internal rate of return mirr, finance, Other Engineering

Assignment Help:
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.

Related Discussions:- modified internal rate of return mirr, finance

Welding, why is it important to only strike the arc in the weld joint

why is it important to only strike the arc in the weld joint

Physical significance of wave function , Wave function is a complex quantit...

Wave function is a complex quantity, which itself has no physical significance. But square of its magnitude gives the probability of finding a particle in a given volume of space a

instrumentatiion, can i get block dig of digital frequency meter

can i get block dig of digital frequency meter.

Y 4 u, Ask questioy 4 men #Minimum 100 words accepted#

Ask questioy 4 men #Minimum 100 words accepted#

#friction, the crate has a mass M and is subjectedto towing P acting at an ...

the crate has a mass M and is subjectedto towing P acting at an angle t1 with the horizontal.if the coefficient of static friction is k,determine the magnitude of p to just start

Pressure relief valve - aircraft engine, PRESSURE RELIEF VALVE The pres...

PRESSURE RELIEF VALVE The pressure relief valve shown in the figure. controls the oil pressure at the pre-set value demanded by the system. The valve is normally integral with

Quantitative, Case 1: Decision Analysis Flifla sells tomatoes every day in...

Case 1: Decision Analysis Flifla sells tomatoes every day in Suk al Marqazi, the downtown fruit and vegetable market. He finds that he can order tomatoes in crates of 25 kg and he

Life cycle of a product from raw materials, The Task: This project is a...

The Task: This project is a 50% of the whole assessment of the course. You are required to assess a life cycle of a product from raw materials, through the supply chain, manufa

Econometrics of Financial Derivatives, I''d like to receive a recommended b...

I''d like to receive a recommended book to be able to price fixed income derivatives when there is not already a martet to to calibrate models. I need to use econometrics book to e

Aerospace engineering, Define the aircraft axes & degrees of freedom. Analy...

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

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd