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Dear John Sir,
If MIRR states that cash flows or returns are reinvested at the cost of capital then should not MIRR be same as cost of capital? Why does MIRR yield an answer that is different from cost of capital of the company?
Many thanks!
Because just as with the normal IRR, for a project to be worthwhile we need the return from the project to be higher than the cost of capital. The reason for the MIRR calculation, as I explain in my free lectures, is that we can use the MIRR when choosing between two projects whereas that is not always reliable in the case of the IRR.
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