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LiquidAssets10

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tT
发表于 2011-7-11 17:32 | 只看该作者

Multiple IRR's

practice, discount, conceptual, ask, only
Should I expect questions that require you to calculate multiple IRR's for non-conventional CF's? Schweser doesn't have much practice problems on that, just conceptual questions.

The practice problems in V. 4 (p 33) ask for the multiple IRR's and the discount rate that will equate the NPV's of two projects. Honestly, the only way I know how to do both is through trial and error....is there an actual method?
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MythosHF

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2#
发表于 2011-7-11 17:32 | 只看该作者
Use your financial calculator to calculate the MIRR.

It is the rate the equate the PV of Cash Outflows with the FV of Cash Inflows, MIRR also assumes that the cash flows are reinvested at the firm's WACC( one of the reason it is superior to the IRR which assumes it is reinvested at the IRR).

So,

Using your Financial Calculator:
Input PV : using cost of capital( as given) as discount rate
Input FV: Calculated using using cost of capital as required rate of return
Input N
CPT I/Y for the MIRR

Hope this helps!

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kamara5

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3#
发表于 2011-7-11 17:32 | 只看该作者
great...thanks!

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orang3eph

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4#
发表于 2011-7-11 17:32 | 只看该作者
SORRY GUYS I THOUGHT THE QUESTION WAS ABOUT MODIFIED IRR!

As rightly pointed out by Alphaboy, Multiple IRR is a phenomenon in case of Non-Normal cash flows where the graph in the NPV Profile crosses the x-axis more than 1 time. It can be calculated through trial and error. Even though you will not be tested on the calculation aspect however you might be tested on the concept itself.

Regarding the discount rate that equates the NPV of two projects is known as the crossover rate, also an important concept to know.

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