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MIRR: Better Measure Case Solution & Answer

During the last sixty years, the net present value (NPV) and internal rate of return (IRR) emerged from obscurity to become the overwhelming choice for quantitative measure of the attractiveness of investments in modern societies. Despite its current popularity, or NPV or IRR was designed to efficiently handle the vast majority of investment issues, ie those in which the flows of newspapers, free cash generated between the time of purchase of assets and the time of sale. NPV assumes that periodic cash flows can be reinvested and the NAV discount rate or cost of capital or other risk-adjusted discount, assumes reinvestment ratio in TIR. Neither assumption is often unrealistic. In addition, evaluation of projects based on financial attractiveness, the two measures may include projects differently. This is important when capital budgets are limited. Finally, a project can have multiple TRI if cash flows are negative to positive once again. The modified internal rate of return (TRIM), discovered in the 18th century, realize those cash flows. This article explains the problems with the NPV and IRR, how TRIM works, and how to address weaknesses TRIM NPV and IRR.
by
Herbert E. Kierulff
Source: Business Horizons
9 pages.
Release: July 15, 2008. Prod #: BH285-PDF-ENG
TRIM: a better solution to measure

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