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Chapter 10

The Modified Internal Rate of Return

The Modified Internal Rate of Return (MIRR) measures the economic
yield of the investment under the assumption that any cash surpluses
are re-invested at the firm’s current cost of capital.

1/n
MIRR = {(TV of Inflows/PV of cash outflows) } – 1

1/n
 Alternatively, MIRR =(PVR/PVI) × (1 + r e) – 1
with PVR = The present value of the ‘Return’ phase of the project, i.e.
the present value of all cash flows from T1 to T….

PVI = the Present Value of the investment phase of the project, i.e. the
present value of the initial cash outflow.

Illustrations and further practice

Now try example 6 ‘Alpine Ltd’ from Chapter 10.

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