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Modified Internal Rate of Return: Alternative Measure in the Efficiency of Investments Evaluation

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  • Mihai Mieila

    (Valahia University of Targoviste, Targoviste, Romania)

Abstract

The evaluation of the efficiency of investments relies on a system of measures based on actuarial techniques that consider the time value of money. One of the common measures used is the Internal Rate of Return (IRR). Commonly, by applying of the efficiency evaluation criteria, result consistent outcomes. In this paper, the author tries to highlight that, based on its theoretical assumptions and practical drawbacks, considering of this measure in evaluation of the investments decisions may lead to erroneous decision. Despite the fact that the Internal Rate of Return (IRR) has never had a favorable academic press, the surveys outline that financial managers seem just to enjoy this measure. The aim of this paper is to summarize the drawbacks of this indicator and to offer a presentation of the Modified Internal Rate of Return (MIRR), as a solution to express a project performance by using of a percentage measure concomitant to discard the unrealistic assumption of reinvestment of cash flow stream just at the value of the IRR, allowing a straightforward calculation.

Suggested Citation

  • Mihai Mieila, 2017. "Modified Internal Rate of Return: Alternative Measure in the Efficiency of Investments Evaluation," International Journal of Sustainable Economies Management (IJSEM), IGI Global, vol. 6(4), pages 35-42, October.
    • Handle: RePEc:igg:jsem00:v:6:y:2017:i:4:p:35-42
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