BFD – IRR and MIRR - Summary

By Taha Popatia

IRR V/S MIRR

L
Internal rate of return (IRR) Modified Internal rate of return
It is the rate at which NPV will become zero. MIRR is the IRR which would result without the

O
Decision Rule assumption that project proceeds are reinvested at the

O
 If a project IRR is equal to or higher than the IRR rate.
minimum acceptable rate of return, it should

H
be undertaken. Decision Rule
 It the IRR is lower than the minimum required Same as IRR

SC
return, it should be rejected.

Assumption Assumption

S
It assumes that the cashflows generated from the MIRR assumes re-investment of cashflows are at cost of
capital which is more realistic in case of having a very high

ES
project will be re-invested at a rate equal to IRR of
the project. IRR.

Formula

N
Formula
IRR = L + NPVL______ x (H - L)
NPVL – NPVH
SI
BU
Where
L = Lower Discount Rate
NPVL = NPV calculated at lower discount rate
TT

H = Higher discount rate

NPVH = NPV calculated at higher discount rate Or
R
-A

Where
PVR = the PV of the return phase (the phase of the project
with cash inflows)
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PVI = the PV of the investment phase (the phase of the

project with cash outflows)
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re = the cost of capital

n = number of years of the project

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 In case of non-conventional projects IRR can produce multiple answers where as MIRR produces only
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single answer.
 MIRR decision is in line with NPV decision so there are few chances of conflict.
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 IRR is not helpful in choosing the best answer in case of mutually exclusive projects.
 IRR & MIRR both are relative measures.

In case of non-conventional projects MIRR include all cash outflows in investment phase.

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