A USEFUL TOOL FOR BOLSTERING INVESTMENT DECISIONS – MODIFIED IRR (MIRR)

Iuliana Militaru ()
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Iuliana Militaru: Romanian-American University, Bucharest

Romanian Economic Business Review, 2016, vol. 11, issue 4, 33-38

Abstract: The need of firms of all sizes to compute rate of return of an investment project is addressed by corporate finance, which provides firms’ management everywhere – at least, everywhere there is a market economy – with such a tool as internal rate of return (IRR) index, which, as well as its several variations (EIRR, FIRR), is useful as far as simply determining rate of return size. On the other hand, IRR does not address the problem of linking quantitative approach of ascertaining (internal) rate of return to that essential quantitative approach of defining cost of long-term financing sources, namely weighted average cost of capital (WACC); built around WACC, the IRR model which solves this problem is known as modified IRR (MIRR).

Keywords: investment decisions; modified internal rate of return; weighted average cost of capital (search for similar items in EconPapers)
Date: 2016
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