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CAPITAL INVESTMENT APPRAISAL
Modified Internal Rate of Return (MIRR)
• This overcomes the disadvantage of the IRR method with incorrectly
assumes that cash-flows are reinvested at the IRR. To correct this problem
you can use the MIRR which is consistent with the NPV method.
Project A:
Calculate the future value of the cash inflows for each year using the WACC:
Year 1: 85 000 x 1.145 = 97 325
Year 2: 65 000 x 1.07 = 69 550
Year 3: 45 000 x 1 = 45 000
Total value of cash inflows at the end of year 3: 211 875
NPV = 22 890 (previously 22 940 – rounding difference)
MIRR = 12.2%
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