HP 0012C-90001 User Manual page 149

This Modified Internal Rate of Return procedure (
alternatives which avoids the drawbacks of the traditional
procedure eliminates the sign change problem and the reinvestment (or
discounting) assumption by utilizing user stipulated reinvestment and borrowing
rates.
Negative cash flows are discounted at a safe rate that reflects the return on an
investment in a liquid account. The figure generally used is a short-term security
(T-Bill) or bank passbook rate.
Positive cash flows are reinvested at a reinvestment rate which reflects the return on
an investment of comparable risk. An average return rate on recent market
investments might be used.
The steps in the procedure are:
1. Calculate the future value of the positive cash flows (
rate.
2. Calculate the present value of the negative cash flows (
n PV
3. Knowing , , and
Example: An investor has the following unconventional investment opportunity. The Example:
Example: Example:
cash flows are:
Group Group Group Group
0
1
2
3
4
MIRR
Calculate the using a safe rate of 6% and a reinvestment (risk) rate of 10%.
Keystrokes Keystrokes Keystrokes Keystrokes
fCLEARH
0gJ
100000gK
5ga
0gK5ga
0gK9ga
200000gK
Section 13: Investment Analysis Section 13:
Section 13: Section 13:
FV i
, solve for .
# of Months # of Months # of Months # of Months
1
5
5
9
1
Display Display Display Display
0.00
0.00 First cash flow.
5.00 Second through sixth cash flows.
5.00 Next five cash flows.
9.00 Next nine cash flows.
200,000.00
Last cash flow.
Investment Analysis
Investment Analysis Investment Analysis
MIRR
) is one of several
IRR
technique. The
NFV
) at the reinvestment
NPV
) at the safe rate.
Cash Flow ($) Cash Flow ($) Cash Flow ($) Cash Flow ($)
–180,000
100,000
–100,000
0
200,000
149
IRR