Modified IRR (MIRR) is computed by:
AMultiplying NPV by 2
BDiscounting cash inflows at IRR
CCompounding cash inflows at cost of capital, finding the rate that equates terminal value to outlay
DAdding inflation to IRR
Answer & Solution
Correct answer: C. Compounding cash inflows at cost of capital, finding the rate that equates terminal value to outlay
1. MIRR compounds intermediate cash inflows at the cost of capital to a terminal value.
2. Then finds the rate that equates terminal value to initial outlay.
3. Solves the reinvestment-rate problem of the plain IRR.
_Source: ICAI BoS CA Inter Paper 6A, Ch 7 "Investment Decisions", §8 — MIRR_