Define Modified Internal Rate Of Return Method?
Modified Internal Rate of Return (MIRR): There are several limitations attached with the concept of the conventional Internal Rate of Return. The MIRR addresses some of these defiencies. For example, it eliminates multiple IRR rates; it addresses the reinvestment rate issue and produces results, which are consistent with the Net Present Value method. Under this method, all cash flows, apart from the initial investment, are brought to the terminal value using an appropriate discount rate(usually the cost of capital). This results in a single stream of cash inflow in the terminal year. The MIRR is obtained by assuming a single outflow in the zeroth year and the terminal cash inflow as mentioned above.The discount rate which equates the present value of the terminal cash in flow to the zeroth year outflow is called the MIRR.
