Teaching MIRR to Improve Comprehension of Investment Performance Evaluation Techniques

NPV and IRR are frequently used to evaluate investment performance, yet when they conflict many firms base capital budgeting decisions on IRR, though NPV is superior in specific cases.Teaching the MIRR technique should reinforce academia's preference of the NPV technique.The reinvestment assumptions of NPV and IRR are implicit and hidden from students, while the calculation of the MIRR technique forces explicit decisions regarding the investment and discounting of interim cash flows.Thus, by teaching the MIRR calculation students may gain a better understanding of the differences between the three techniques reinforcing the primacy of NPV.