Problems Between of Internal Rate of Return and Modified Internal Rate of Return Methods

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This research paper discusses the problems that exist between IRR and MIRR methods and proves that the MIRR is the better method to choose from. The MIRR method is very useful because it can aid an individual when it comes to investing and capital budgeting. One important advantage that the MIRR method has over the IRR method is that it provides a more effective analysis of capital budgeting. The MIRR method is highly recommended for projects in which cash flow is constantly changing or when the project is mutually exclusive. A scenario in which the MIRR method should not be utilized is when one is attempting to make decisions concerning investment over individual projects. Internal Rate of Return IRR is considered to be an important method for capital budgeting proposals. The Internal Rate of Return is the rate, where present value of cash inflows and outflows comes out to be equal or the rate at which NPV from the project comes equal to zero. At this rate, there are no benefits or losses for the Organization. If the Organization earns an IRR on the investment, the NPV will be equal to zero for the investment. It also helps the Management to take a decision regarding investment as to whether they should invest in project or not. A higher IRR makes the project desirable to be undertaken. It provides information about the efficiency of the project because it is based on the assumption that all the cash inflows are invested again in the project at the IRR basis (Brigham &

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