IRR is not B.S

This webpage discusses comments by the Amsterdam Institute of Finance that the IRR is B.S.  As the IRR is the principle output of a project model, alternatives to the IRR are discussed.  I demonstrate that the MIRR alternative has more problems than the IRR and that the NPV does not give you any other information.  The IRR is a performance statistic and professor’s who complain about it are simplistic.

 

This is the e-mail that got me going.  Apparently AIF likes its teachers to swear at its participants so they can show how arrogant they are.  This silly comment that the IRR is B.S. is really irritating because there suggestions of an alternative are not there.

 

Power Point Slide with IRR Discussion and Repsonse to AIF Comment about IRR from Oxford Professor

 

Excel File with IRR, MIRR and Weighted Average ROIC Exercies along with Market Risk Premium Simulations

 

 

 

The Problem with IRR Alternatives — You Need the Cost of Capital

 

 

Re-Investment Rates and MIRR

The only alternative that is typically suggested to the IRR, is to use the MIRR.  This method does nothing other than measure the re-investment rate assumption on your key performance measure.  Maybe that is why nobody really uses it.