Difference between internal rate of return and modified internal rate of return.

Question

Difference between internal rate of return and modified internal rate of return.

Banking & FinanceFinance ManagementGrowth & Empowerment

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The major differences between internal rate of return (IRR) and modified internal rate of return are as follows −

Internal rate of return (IRR)

• Calculates discount rate based on internal factors.
• NPV = 0.
• Cash flows are Reinvested at project’s IRR.
• Provides two solutions.
• Less accurate.
• Higher than MIRR.
• Low precision.

Modified internal rate of return

• Cost of capital is used in calculations.
• NPV = investment (outflow).
• Cash flows are reinvested at firm rate of return.
• Provides one solution.
• More accurate.
• More realistic than IRR.
• High precision.

Mandalika

Published on 26-Sep-2020 17:10:47

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