Terminal Value =


Internal Rate of Return = 24.89% Modified Internal Rate of Return = 21.23%

Modified Internal Rate of Return = ($2160/$1000)1/4 -1 = 21.23% The modified internal rate of return is lower than the internal rate of return because the intermediate cash flows are invested at the hurdle rate of 15% instead of the IRR of 24.89%.

There are many who believe that the MIRR is neither fish nor fowl, since it is a mix of the NPV rule and the IRR rule. From a practical standpoint, the MIRR becomes a weighted average of the returns on individual projects and the hurdle rates the firm uses, with the weights on each depending on the magnitude and timing of the cash flows - the larger and earlier the cash flows on the project, the greater the weight attached to the hurdle rate. Furthermore, the MIRR approach will yield the same choices as the NPV approach for projects of the same scale and lives.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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