Question

highlight different MIRR Approaches and why there is need to calculate MIRR Instead of IRR?

Answer 1

There are three approaches of marginal internal rate of return-

A. Discounting approach- In the discounting approach, we will be trying to discount all the cash flow that the time 0, and all the cash inflows will be remaining the similar so we will be able to find out rate of marginal internal rate of return

B. Re-investment approach- Re-investment approach we will be finding out the future value of all the cash associated with the project at the end of the project and we will believe that the cash will be reinvested back into business

C. Combination approach- combination approach the type of marginal internal rate of return approach which will be combining the investment approach along with the discounting approach and which will be used to find an appropriate rate of discounting at the present value and it will reinvest also.

there is a need to calculate marginal internal rate of return instead of internal rate of return because when there will be more than one cash outflows in the project, the internal rate of return will be providing out with two types of internal rate of return so there will be multiple internal rate of return, and it will not be providing us with exact idea of whether to accept the project or not so marginal interest rate of return will be providing us with an appropriate rate of return which will be helpful in determination of the decision making process.