medium · Principles of Finance capital-budgeting
How does the Modified Internal Rate of Return (MIRR) address the primary weakness of the standard IRR reinvestment assumption?
- It only considers cash flows occurring within the first five years of the project's life.
- It removes the need for any initial cash outlay when performing the calculation.
- It relies on the arithmetic mean of returns instead of a compounded geometric calculation.
- It allows the user to specify a reinvestment rate, typically the firm's cost of capital.
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