MIRR
In this lesson, you'll learn how Modified Internal Rate of Return (MIRR) overcomes the key limitations of traditional IRR by providing a single, realistic measure of project returns.
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In this lesson
- 0:00 Modified Internal Rate of Return Overview
- 1:46 MIRR Calculation Formula and Components
- 3:05 Using Spreadsheet Functions for MIRR
- 4:17 Worked Example: MIRR Calculation Steps
- 6:45 Advantages and Limitations of MIRR
About this lesson
You'll discover why MIRR assumes cash flows are reinvested at the cost of capital rather than the IRR itself, and how this gives decision makers a clearer picture of actual project performance. The lesson covers the MIRR formula, practical spreadsheet calculation using computer-based exam tools, and how to apply the decision rule: accept the project if MIRR exceeds the cost of capital. You'll also explore the strengths of MIRR—including its ability to handle complex cash flow patterns and eliminate multiple rate problems—alongside its limitations, such as sensitivity to reinvestment rate assumptions and reliance on accurate long-term forecasts.
Duration: 8m
Transcript
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