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    az_blondie200's Avatar
    az_blondie200 Posts: 1, Reputation: 1
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    #1

    Jan 28, 2008, 08:45 PM
    Reinvestments & npv, irr, &mirr
    :( reinvestment rate assumption embodied in the NPV, IRR, and MIRR methods
    lewiscurry's Avatar
    lewiscurry Posts: 2, Reputation: 1
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    #2

    Mar 17, 2008, 09:08 PM
    In what sense is a reinvestment rate assumption embodied in the NPV, IRR, and MIRR methods?
    lewiscurry's Avatar
    lewiscurry Posts: 2, Reputation: 1
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    #3

    Mar 17, 2008, 09:09 PM
    For the NPV the assumption is that all cash flows can be reinvested at the cost of capital rate. The NPV allows projects to be compared based on the funds that they are projected, and so the NPV is expressed in dollars. The IRR method makes the assumption that all cash flows can be reinvested at the IRR rate. The IRR rate is expressed in percentages of rate of return. The MIRR method like the NPV method assumes that cash flows can be reinvested at the cost of capital rate. The MIRR is a modified version of the IRR that corrects some of the weaknesses of the IRR. The main weakness of the IRR is that it should not be used to evaluate projects with abnormal cash flows.
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