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What is the reasoning for calculating a MIRR instead of just the IRR? Are there any...

What is the reasoning for calculating a MIRR instead of just the IRR? Are there any circumstances in which the two methods provide the same solution?

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Answer #1

Explanation : The Irr is the average return of the project gives through every years of operations, it does not consider factors like cost of capital and inflation also, The IRR assumes that the project is assumed at the IRR rate itself while MIRR refers to the modified internal rate of return, it is the modified version of the internal rate of return which assumes that the project cash flows are reinvested at the cost of capital.

When the IRR rate is same as cost of capital then the MIRR rate would be similar to IRR and give the same solution as the cash flows will be invested at similar rate in both the scenarios.

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