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Hello John. hope you are in good health.
I wanted to ask you a few basic question that I am confused about.
Can we use “MIRR” instead of “IRR” for the calculation of the projects “Duration”. If yes then why? If no then Why?
How is Duration more reliable than the traditional Payback Time? I want to know the Pros of Duration.
Although we consider discounted cash flows in Payback, how come the payback does not take into account the “Time Value of Money”?
Thank You
You don’t need the IRR to calculate the duration. It is the weighted average of the PV’s as a % of the total PV.
Normal payback period, does not use discounted cash flows – it uses the actual cash flows.
Discounted payback period does use the discounted cash flows (and so is perhaps better) but ignores the flows outside the payback period (if for, example, the payback period is 3 years, then any flows from year 4 onwards are irrelevant).The duration takes into account all of the future flows.
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