Talk:Modified internal rate of return

message: the article is written in a very casual and imprecise language. Needs to be spruced up.
sandy 06:11, 8 April 2007 (UTC)
thread_title: Article language

message: The equation used in the MIRR calculation is wrong. The correct equation is witghout the factor (1+finance rate) in the denominator
and is on power of n-1 in the nominator rather than n.  —Preceding unsigned comment added by Gtaljan (talk • contribs) 14:24, 29 January 2008 (UTC)
replies: text: corrected--Samnikal (talk) 02:16, 20 October 2009 (UTC)
thread_title:  The equation used in the MIRR calculation. 

message: The article mentions a "present worth ratio", and includes citations, but provides no links or definition. Wikipedia has no article mentioning a "present worth ratio" except this one, and Google turns up this article first when searching for it.
Some elaboration of the concept would be beneficial.
::Agree. Removed this paragraph.--Samnikal (talk) 04:59, 23 October 2009 (UTC)
thread_title:  Present worth ratio 

message: The author states a myth about the IRR as a problem. There is no reinvestment rate used to calculate the IRR and there is not an assumed reinvestment rate occurring either. The IRR is equal the the discount rate that makes the NPV discount rate 0. So to state that the IRR uses a reinvestment rate is to state that the NPV uses a reinvestment rate, which of course is not true.
The MIRR is the IRR of the future value calculation.
The second problem about the irregular cash flows is true, but that is what the XIRR is designed for.  —Preceding unsigned comment added by Planease (talk • contribs) 23:19, 14 September 2009 (UTC)
replies: text: It's not a myth. Computing the discount rate that makes the NPV equal to zero is mathematically equivalent to assuming that all interim proceeds are reinvested at the project's rate of return, and then seeing what discount rate equates the future value of the project to the start-up cost.  Duoduoduo (talk) 15:01, 2 February 2011 (UTC)
replies: text:  I will disagree with Duoduoduo on this. IRR is just the discount rate at which the NPV of a cashflow is zero, it does not assume anything about reinvestment. E.g. if my cashflow is -1000 today, +600 six months after today, +600 year after today, then the middle +600 is not assumed to be reinvested at all! IRR does not attempt to compare the value of a cash flow after a year (when project ends) vs today. The middle +600 can be used for consumption already in 6 mothns, not 12 (when project ends). In fact, if I do plan to reinvest the middle +600 for half a year at rate, say, 10% nominal p.a., then I can explicitly include this in my cash flow: -1000 today, +600-600=0 in 6 months from today,  +600 + 600*(1.05)= +600+630 in 12 months from today. Then I just calculate the IRR on that. The article, which is cited after the sentence in question of the wikipedia article, attempts to explain why IRR may be not the best choice for estimating project worth, but the author, in my opinion, presents an ill constructed argument for this.194.126.99.204 (talk) 09:33, 9 September 2011 (UTC)
replies: text:  I tend to agree that the IRR is a discount rate and it does not assume anything about the reinvestment rate. It is common to confuse it in literature. If you know  (a) the cost of the project and (b) all the cash flows, then you can calculate the IRR. Until this point nobody said anything about the FV of the project; it is unkown. To calculate the FV you need an extra variable and that is the (c) reinvestment rate. You might say, that the FV is simply the cash flows compounded by the IRR, but that is already introducing the extra assumption that (c) reinvestment rate = IRR. However, the IRR method itself is just a discount rate, it does not tell you to assume that the reinvestment rate = IRR. --Wikijasmin (talk) 21:09, 25 October 2012 (UTC)
replies: text: I also agree that the IRR does not assume reinvestment of cash inflows. The Wikipedia entry for IRR contains a section called "The Reinvestment Misconception". In the Talk section for the IRR entry I added the following comment about this section: "The reinvestment misconception section may not have had a lot of citations but it is correct and is well-done. There are a number of good citations available. See, for example, Jack Lohman's article (Engineering Economist, summer 1988), or Keef and Roush's article (Accounting Education,2001,10(1), pp.105-116). At its simplest, the IRR cannot be based on an implicit assumption that cash inflows will be reinvested at the IRR because the IRR would be the same even if the firm chooses to distribute all cash inflows to shareholders rather than to reinvest them. There is no necessity to reinvest any of the cash flows. Of course if inflows were to be reinvested at the IRR rate then this combined project (the original project combined with the reinvestment project) would also have an IRR the same as the original project. However the combined project would be a very different project from the original project, since it would have a longer duration and likely a different NPV. Somehow, some people have confused the unlikely possibility of reinvesting a project's inflows at the IRR as an implicit assumption of the IRR calculation. However the cash flows of a project are reinvested (if they are) at whatever rate,the IRR of the original project is unchanged."GrayBorn (talk) 22:57, 2 September 2014 (UTC)
thread_title:  IRR not correctly represented