The modified internal rate of return can be used to correct for:
A) negative NPV calculations.
B) multiple internal rates of return.
C) undefined payback periods.
D) borrowing projects.

Question

Quizplus · Accepted Answer

The modified internal rate of return (MIRR) is specifically designed to address the issue of multiple internal rates of return. When a project has multiple cash inflows and outflows, and/or when cash flows change sign more than once, traditional IRR measures can provide ambiguous or incorrect results. MIRR is calculated by adjusting the terminal value of the investment to a single future value and then solving for the rate of return that equates the initial investment with the modified terminal value. This approach ensures that there is only one rate of return that reflects the project's true profitability. MIRR cannot correct for negative NPV calculations, undefined payback periods, or borrowing projects.

The Modified Internal Rate of Return Can Be Used to Correct