Modified IRR Calculator (MIRR)
Calculate Modified Internal Rate of Return with reinvestment assumptions
Calculate Modified IRR (MIRR)
Upfront investment amount
Cost of borrowing/financing
Rate for reinvesting cash flows
Annual Cash Flows
Note: Enter positive values for cash inflows and negative values for cash outflows.
MIRR Results
MIRR Formula: MIRR = (FV / PV)^(1/n) - 1
Calculation: (0 / 0)^(1/1) - 1 = 0.00%
Financing Rate: 0% | Reinvestment Rate: 0%
MIRR Performance Guide
Example Calculation
Investment Project Example
Initial Investment: $10,000
Year 1 Cash Flow: $6,000
Year 2 Cash Flow: -$4,000
Year 3 Cash Flow: $8,000
Year 4 Cash Flow: $3,000
Year 5 Cash Flow: $7,000
Financing Rate: 10%
Reinvestment Rate: 12%
MIRR Calculation Steps
1. Future Value of Positive CFs: $6,000×(1.12)⁴ + $8,000×(1.12)² + $3,000×(1.12) + $7,000 = $29,836
2. Present Value of Negative CFs: $10,000 + $4,000/(1.10)² = $13,306
3. MIRR Calculation: ($29,836 / $13,306)^(1/5) - 1 = 17.53%
Result: The Modified IRR is 17.53% (vs traditional IRR of ~24.38%)
MIRR Components
Future Value
Positive cash flows compounded at reinvestment rate
Assumes profitable reinvestment
Present Value
Negative cash flows discounted at financing rate
Cost of capital consideration
MIRR
Modified rate considering reinvestment
More realistic than traditional IRR
MIRR vs Traditional IRR
MIRR Advantages
- • Realistic reinvestment assumptions
- • Single solution (no multiple IRRs)
- • Better project ranking
- • Considers financing costs
Traditional IRR Issues
- • Unrealistic reinvestment at IRR rate
- • Multiple solutions possible
- • Poor ranking for mutually exclusive projects
- • Ignores cost of capital differences
Key Insights
MIRR is generally lower and more conservative than traditional IRR
Use different rates for financing and reinvestment for accuracy
Better for comparing projects with different cash flow patterns
More realistic assumptions about reinvestment opportunities
Eliminates multiple IRR solutions for non-conventional cash flows
Understanding Modified Internal Rate of Return (MIRR)
What is Modified IRR?
Modified Internal Rate of Return (MIRR) is an enhanced version of the traditional IRR that addresses its key limitations. While IRR assumes that interim cash flows are reinvested at the IRR rate itself, MIRR allows you to specify separate rates for financing negative cash flows and reinvesting positive cash flows.
Why Use MIRR?
- •More realistic reinvestment assumptions
- •Eliminates multiple IRR solutions
- •Better for project ranking and selection
- •Considers cost of capital explicitly
MIRR Formula
MIRR = (FV / PV)^(1/n) - 1
- FV: Future Value of positive cash flows
- PV: Present Value of negative cash flows
- n: Number of periods
- Financing Rate: Cost of borrowing
- Reinvestment Rate: Return on reinvested cash flows
Key Insight: MIRR typically produces more conservative and realistic return estimates compared to traditional IRR calculations.
Detailed Formula Components
| Component | Formula | Purpose |
|---|---|---|
| Future Value (FV) | Σ[Ci+ × (1+RR)^(n-i)] | Compounds positive cash flows at reinvestment rate |
| Present Value (PV) | C0- + Σ[Ci- / (1+FR)^i] | Discounts negative cash flows at financing rate |
| MIRR | (FV/PV)^(1/n) - 1 | Calculates modified rate of return |
When to Use MIRR vs Traditional IRR
Use MIRR When:
- • Cash flow patterns are non-conventional
- • Comparing mutually exclusive projects
- • Reinvestment rates differ from project returns
- • Need more conservative estimates
- • Multiple IRR solutions exist
Use Traditional IRR When:
- • Simple conventional cash flows
- • Quick preliminary analysis
- • Reinvestment rate equals project return
- • Industry standard requires IRR
- • Standalone project evaluation
Practical Applications
- 🏢Corporate Finance: Capital budgeting and project selection with realistic reinvestment assumptions
- 🏠Real Estate: Property investment analysis considering market reinvestment opportunities
- 💼Private Equity: Fund performance evaluation with realistic exit and reinvestment scenarios
- 🔬R&D Projects: Long-term research investments with uncertain intermediate cash flows