Respuesta :
Due to the possibility of using inflated discount rates for all cash flows, internal rate of return( IRR) estimates may overestimate the possible future worth of a project. To prevent skewing the cost of reinvested growth from stage to stage in a project, the modified internal rate of return is employed.
IRR is helpful because it enables managers and analysts to evaluate the returns from several projects and select the one that offers the best overall return or that exceeds a predetermined minimum return threshold.
The IRR calculation offers a simple approach to evaluating options and aids in "normalizing" the cash flows from possible investments.
To prevent skewing the cost of reinvested growth from stage to stage in a project, the modified internal rate of return is employed. The assumed rate of reinvested growth can be changed for various project stages using a modified internal rate of return.
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