MIRR: A better measure

Over the past 60 years Net Present Value (NPV) and the Internal Rate of Return (IRR) have emerged from obscurity to become the overwhelming choices for the quantitative measurement of investment attractiveness in modern corporations. Despite their current popularity, neither NPV nor IRR was designed to deal effectively with the vast majority of investment problems, meaning those where periodic free cash flows are generated between the time of asset purchase and the time of sale. NPV assumes that periodic cash flows can and will be reinvested at the NPV discount rate, either at the cost of capital or another risk adjusted discount rate; IRR assumes reinvestment at the IRR. Neither assumption is usually realistic. In addition, when evaluating projects in terms of their financial attractiveness, the two measures may rank projects differently. This becomes important when capital budgets are limited. Finally, a project may have several IRRs if cash flows go from negative to positive more than once. The Modified Internal Rate of Return (MIRR), discovered in the 18th century, does account for these cash flows. This article explains the problems with NPV and IRR, describes how MIRR works, and demonstrates how MIRR deals with weaknesses in NPV and IRR.     

The Boundary of Leadership: Getting it Right and Having it All

Leadership should be a balance between a directive style which shows the way (gets the job done) and a softer, devolved style which maximises the potential of individuals. This article describes how setting a boundary serves both purposes. The boundary represents the guidance, support and expertise of the leader and is communicated through behaviour and actions. Within the boundary is where work activity occurs and where individuals have the freedom to be creative and take responsibility for their actions. This model of leadership promotes motivation, creativity and performance (the positive outcomes of empowerment) while also sustaining support, managerial control and expert input (often lost with empowerment). The boundary offers the leader a way to be both an enabler and a container.