MIRR Calculator – Modified Internal Rate of Return
Calculate Modified Internal Rate of Return for investment analysis
Table of Contents
How to Use
- Enter the initial investment amount
- Set the finance rate (cost of borrowing)
- Set the reinvestment rate (expected return on reinvested cash)
- Add cash flows for each period
- Click calculate to see your MIRR
What is MIRR?
The Modified Internal Rate of Return (MIRR) is a financial metric used to evaluate the attractiveness of an investment. Unlike the traditional IRR, MIRR accounts for the cost of capital and the reinvestment rate of cash flows, providing a more accurate picture of an investment's profitability.
MIRR solves two major problems with IRR: the reinvestment rate assumption and the multiple IRR problem that can occur with non-conventional cash flows.
MIRR vs IRR
| Aspect | IRR | MIRR |
|---|---|---|
| Reinvestment assumption | Reinvests at IRR rate | Reinvests at specified rate |
| Multiple solutions | Can have multiple IRRs | Always single solution |
| Realism | Often unrealistic | More realistic |
| Calculation | Iterative | Direct formula |
MIRR Formula
MIRR = (Future Value of Positive Cash Flows / Present Value of Negative Cash Flows)^(1/n) - 1
- Future Value: Positive cash flows compounded at reinvestment rate
- Present Value: Negative cash flows discounted at finance rate
- n: Number of periods
When to Use MIRR
- Capital budgeting decisions with varying cash flows
- Comparing projects with different scales
- When reinvestment rate differs from project return
- Projects with non-conventional cash flow patterns
Frequently Asked Questions
- Why is MIRR better than IRR?
- MIRR is often considered more accurate because it uses realistic reinvestment and finance rates rather than assuming all cash flows are reinvested at the IRR. It also always produces a single solution, unlike IRR which can have multiple values for non-conventional cash flows.
- What is a good MIRR?
- A good MIRR should exceed your cost of capital or required rate of return. If MIRR is higher than your hurdle rate, the investment is considered acceptable. Compare MIRR across projects to identify the best investment opportunities.
- What finance rate should I use?
- The finance rate typically represents your cost of capital or borrowing rate. This could be your weighted average cost of capital (WACC), loan interest rate, or opportunity cost of capital.
- What reinvestment rate should I use?
- The reinvestment rate should reflect the realistic return you can earn on reinvested cash flows. This might be your company's typical return on investments, a risk-free rate, or your cost of capital.