medium · Principles of Finance

How does the Modified Internal Rate of Return (MIRR) address the primary weakness of the standard IRR reinvestment assumption?

1. It only considers cash flows that occur within the first five years of a project.
2. It eliminates the need for any initial investment in the calculation.
3. It uses the arithmetic mean of returns to avoid complex geometric calculations.
4. It allows the user to specify a reinvestment rate, typically the firm's cost of capital.

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