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In this video, I explain the difference between IRR & MIRR and walk through several examples applying the two concepts.
What is MIRR? How is it used to judge capital projects? A study completed by McKinsey identified the key weakness of using IRR as an indicator of strength for capital projects. The reinvestment assumption assumes that any interim cash flows from the project will be reinvested at the same IRR throughout the investment period, an assumption truly flawed. By using MIRR, analysts are better able to judge a project's true value by reinvesting interim cash flows at the company's cost of capital.
Read the full report at:
www.mckinsey.com/business-func...
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