In this paper, the modified internal rate of return (MIRR) is demonstrated to be a holding period return calculation that is not dependent on knowing a project's internal rate of return (IRR) nor the process for finding the IRR. Further, the MIRR calculation can be directly connected to the calculation of the profitability index (PI) and the net present value (NPV) if project cash flows are discounted using a firm's weighted average cost of capital. This connection to the PI and NPV allows for an intuitively appealing presentation of the MIRR calculation.
Copyright © 2013 Financial Education Association. This article first appeared in Advances in Financial Education 11 (2013): 70-74
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Arnold, Tom, and Terry D. Nixon. "An Easy Method to Introduce MIRR into Introductory Finance Classes." Advances in Financial Education 11 (2013): 70-74.