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When would it be necessary to utilize the MIRR?

When would it be necessary to utilize the MIRR?

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Answer #1

When necessary to use MIRR:

MIRR is best used when projects or investments are of unequal size. The MIRR calculations are considered to be appropriate when there are two major problems with IRR calculation. Following are the problems:

  • The first main problem is that when there are multiple solutions for the same project.
  • The second problem is that when there is assumption that positive cash flow are reinvested when the IRR is considered to be impractical in practice.

When MIRR is used, it provides single solution for a project & the reinvestment rate of positive cash flows become much more valid in practical situations.

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