Difference between internal rate of return and modified internal rate of return.

The major differences between internal rate of return (IRR) and modified internal rate of return are as follows −

Internal rate of return (IRR)

• Calculates discount rate based on internal factors.
• NPV = 0.
• Cash flows are Reinvested at project’s IRR.
• Provides two solutions.
• Less accurate.
• Higher than MIRR.
• Low precision.

Modified internal rate of return

• Cost of capital is used in calculations.
• NPV = investment (outflow).
• Cash flows are reinvested at firm rate of return.
• Provides one solution.
• More accurate.
• More realistic than IRR.
• High precision.