Abstract
The Internal Rate of Return (IRR) and Modified Internal Rate (MIRR) of Return are imperative to understanding the investment on a project and the expected returns or profitability. Under the valuation method of IRR is to accept the project which has the greater number of required rate of return, or otherwise, reject the project. However, MIRR is better indicator of the project’s true profitability

IRR v. MIRR Valuation Methods

The Internal Rate of Return (IRR) is defined as the rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity. The Modified Internal Rate of Return (MIRR) assumes that positive cash flows are reinvested at the firm's cost of capital, and the initial outlays are financed at the firm's financing cost. Therefore, MIRR more accurately reflects the cost and profitability of a project. (inestwords ) Valuation methods can be used to appropriately allocate the needed resources. This can improve timing and the quality of the allocated funds. The invested projects are expected to be profitable in the forecasted time frame. It is best if organizations make the profit faster than expected time frame, because going beyond that timeline can create losses. The underlying principle of IRR is to present the expected rate of return of the project. If the IRR exceeds the cost of funds used to finance the project, a surplus remains after paying for the capital, and this surplus accrues to the firm’s stockholders. Therefore, taking the project which the IRR exceeds its cost of capital increases shareholder’s wealth. On the other hand, if the IRR is less than the cost of capital, then the decision to take on the project imposes a cost on current...

...MIRR VS. IRR
Charles Beale
Ashford University
Business 650 Managerial Finance
Professor Rick Kwan
September 17, 2012
The Modified Internal Rate of Return is an underused measure for selection of projects that a company can choose because it is more effective at dealing effectively with periodic free cash flows that develop from the time that an asset is purchased through its life to the point where it is sold, ranking projects and...

...Capital Expenditure ValuationMethods
The payback period is the time it takes for a project or investments cash outflows to be recovered by cash inflows generated from the same project or investment. It is a very simple and commonly used capital budgeting technique. The formula used to compute the payback period is initial investment divided by cash inflow per period. You generally want to choose the investment that provides the shortest payback period, because...

...Net Present Value
Net present value (NPV) and Internal rate of return (IRR) are used to determine whether to accept a project or not.Net Present Value (NPV)Net present value is the difference between the present value of cash inflows and the present value of cash outflows. It is used in capital budgeting to analyze the profitability of an investment or project.
NPV= sum[CFt/(1+r)t]-C0
CFt– cash flow in the time t
C0 – initial investment
r – periodic interest rate
NPV...

...Code: Instructor: Submission Date:
1. Liu Yikun 2.Wang Siqi 3.Xu Mengxing 1.U1220769H 2.U1220694D 3.U1220644C Seminar group ___13___
4.Xu Weinan 5.Zhang Han 4.U1220473G 5.U1220522L Team ___5___
Examination on Wilmar Limited’s valuationmethods and valuation trend of two selected accounts. Accounting II – AB1102 Lau Chew King 11-03-2013
Keep a Copy of the Assignment
Please make a copy of your work. If you have submitted your assignment...

...ASSIGNMENT TOPIC:
“THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)”
NPV (NET PRESENT VALUE)
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.
NPV compares the value of a dollar...

...VALUATION TECHNIQUES
Vault Guide to Finance Interviews Valuation Techniques
How Much is it Worth?
Imagine yourself as the CEO of a publicly traded company that makes widgets. You’ve had a highly successful business so far and want to sell the company to anyone interested in buying it. How do you know how much to sell it for? Likewise, consider the Bank of America acquisition of Fleet. How did B of A decide how much it should pay to buy Fleet? For starters,...

...Equity Valuation: Discounted Cash Flow and Residual Income Models
Introduction
Valuation plays a very important role when companies are trying to increase their value, raise money, acquire another firm or sell a subsidiary, also when a company decides to go public.
Managers, investors and shareholders need to have the most accurate and reliable information in order to make decisions, that is why valuation is a fundamental exercise in corporate...

...University of Virginia
UVA-F-1274
METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS This note addresses the methods used to value companies in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted cash flow (DCF) approach and reviews other methods of valuation, such as book value, liquidation value, replacement cost, market value, trading multiples of peer firms, and comparable...

5214 Words |
15 Pages

Share this Document

Let your classmates know about this document and more at StudyMode.com

## Share this Document

Let your classmates know about this document and more at StudyMode.com