| Abstract: | In this paper we examine the relationship between the Modified Internal Rate of Return (MIRR) and a project's expected holding-period rate of return assuming that cash flows are reinvested at the cost of capital. When cash flows are uncertain, the MIRR overstates the expected holding-period rate of return. The relationship between the MIRR and a project's expected holding-period rate of return is shown to be a simple function of conventional project statistics like the coefficient of variation of the present value of random cash flows, the profitability index, the cost of capital, and the project's life. |
