Modified Internal Rate of Return

Definition of 'Modified Internal Rate of Return'

The rate of return which equates the initial investment with a projects terminal value, where the terminal value is the future value of the cash inflows compounded at the required rate of return (the opportunity cost of capital).

This better reflects the profitability of a project, as standard IRR assumes the cash generated from the project is reinvested at the IRR, whereas MIRR assumes that cash is reinvested at the firms cost of capital.

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