A Practical Approach to Determine NPV, IRR, and MIRR Ranking Conflicts With Excel
DOI:
https://doi.org/10.33423/jabe.v26i3.7150Keywords:
business, economics, NPV, IRR, MIRR, WACC, ranking conflict, conflict regionsAbstract
DCF methods, except the case of multiple IRRs, identify good projects when analyzed individually. However, all might conflict when ranking projects. MIRR, a method that addresses the multiple IRR problem, is a complex method for analyzing investments as it includes a reinvestment rate. Most finance textbooks do not discuss, even though some mention, the ranking conflict between NPV and MIRR. Along with the known conflict between NPV and IRR, we present an original method to determine if there is a conflict between NPV and MIRR, and the regions of the discount rate where a conflict is present or not. This method, verified by an Excel analysis, is useful to practitioners and educators alike.
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