What makes the "modified" rate of return different ... on Yedda

What makes the "modified" rate of return different ...

What makes the "modified" rate of return different? This second formula takes into account not only the expected yield, but accounts for the yield after reinvesting in the initial project.

NO: MIRR is obtained by reinvesting in the market, at the MARR (Max. attractive rate of return) until the end of the project - not in the initial project.

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Osman

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The Internal rate of return (IRR) assumes that cash flows from a project are reinvested at the IRR, the modified IRR assumes assumes that all cash flows are reinvested at the company's cost of capital.

That is why the MIRR reflects in a more accurate way the profitability of a company.

Hope this answered your question.

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BLACKLAB

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Regarding MIRR, cash outflows are reinvested at the MARR until the end of the project - this agrees with what I said.

You say: "The Internal rate of return (IRR) assumes that cash flows from a project are reinvested at the IRR."

The IRR for a project can be calculated WITHOUT having the cash outflows reinvested. It is a common misunderstanding to think that they must be reinvested.

If they are reinvested at the IRR, then you get the same IRR result for the project. It would be very difficult to find such an investment to give the same rate of interest as the IRR.

Posted 9 months ago ( permalink )

In reply to Osman's answer