MIRR Calculator

Calculate Modified Internal Rate of Return with separate finance and reinvestment rates for accurate project evaluation

About the MIRR Calculator

The Modified Internal Rate of Return (MIRR) is a sophisticated financial metric used by corporate analysts and investors to evaluate the profitability and efficiency of a potential investment. Unlike the traditional Internal Rate of Return (IRR), which assumes that interim cash surpluses are reinvested at the project's own internal rate, the MIRR allows for two distinct rates: a finance rate for the cost of capital and a reinvestment rate for positive cash flows. This distinction makes MIRR a far more realistic indicator for projects with varying cash flows or those operating in environments where reinvestment at the IRR rate is not feasible.

Financial managers use this tool to compare projects of different sizes or durations on a level playing field. It effectively eliminates the 'multiple IRR' problem often encountered when projects have alternating positive and negative cash flows over their lifespan. By using our MIRR calculator, you can determine whether an investment truly meets your hurdle rate after accounting for the actual cost of borrowing and the realistic returns on idle cash. This ensures that capital is allocated to projects that maximize shareholder value without overstating the potential for compounding returns.

Formula

MIRR = [ (FV of positive cash flows at reinvestment rate / PV of negative cash flows at finance rate)^(1/n) ] - 1

The formula determines the n-th root of the ratio between the terminal value of returns and the present value of costs. FV represents the future value of all positive cash inflows compounded to the end of the project using the reinvestment rate. PV represents the present value of all negative cash outflows (investment costs) discounted to time zero using the financing rate. The variable n represents the total number of periods. By adjusting these values based on specific financing and reinvestment assumptions, MIRR provides a single rate of return that accounts for the time value of money and realistic capital growth.

Worked examples

Example 1: An initial investment of $10,000 followed by returns of $2,000, $4,000, and $8,000 over three years, with a 6% finance rate and a 4% reinvestment rate.

1. PV of Outflows: $10,000 / (1+0.06)^0 = $10,000. \n2. FV of Inflows: ($2,000 * 1.04^2) + ($4,000 * 1.04^1) + ($8,000 * 1.04^0) = $2,163.20 + $4,160 + $8,000 = $14,323.20. \n3. MIRR formula: ($14,323.20 / $10,000)^(1/3) - 1. \n4. 1.43232^0.333 - 1 = 0.1145.

Result: 11.45% MIRR. This project is viable if the company's hurdle rate is below this percentage.

Example 2: A project costs $50,000 and generates $20,000 annually for 4 years, with an 8% cost of capital and 5% reinvestment rate.

1. PV of Outflows: $50,000. \n2. FV of Inflows: $20,000 * [(1.05^4 - 1) / 0.05] = $86,202.50. \n3. MIRR: ($86,202.50 / $50,000)^(1/4) - 1. \n4. 1.72405^0.25 - 1 = 0.1458 - 1 = 1.0891 - 1 = 0.0891.

Result: 8.91% MIRR. The project return is lower than the IRR would suggest because of the realistic 5% reinvestment assumption.

Common use cases

A company deciding whether to upgrade factory machinery where the financing cost is 5% and the return on cash reserves is 3%.
Real estate investors comparing two properties with different renovation timelines and rental income schedules.
Venture capitalists evaluating a startup that requires multiple rounds of funding at different stages of the project life.

Pitfalls and limitations

Using the same rate for both financing and reinvestment negates the specific accuracy benefits of the MIRR method.
Entering initial investment as a positive number will result in a calculation error; costs must be input as negative values.
The calculator assumes cash flows occur at the end of each period, which may slightly misrepresent projects with mid-period returns.
MIRR does not account for the absolute dollar scale of a project, potentially favoring a small project with high returns over a large project with high total value.

Frequently asked questions

is mirr better than irr for investment analysis

The MIRR is generally considered more accurate because it assumes positive cash flows are reinvested at the cost of capital, whereas the standard IRR assumes they are reinvested at the IRR's own rate, which is often unrealistically high.

what is a good mirr result for a project

A project is generally considered acceptable if the MIRR is greater than the cost of capital. This indicates the project generates a return higher than the expense of funding it.

why is my mirr calculation zero or negative

Zero or negative MIRR values usually occur when the total future value of positive cash flows is less than or equal to the present value of the initial costs, signaling a loss or break-even status.

what values do i need to find mirr

MIRR is calculated using three main inputs: the series of cash flows (initial cost and future returns), the financing rate (cost of borrowing), and the reinvestment rate (rate earned on interim cash flows).

can mirr solve multiple irr problems for unconventional projects

MIRR corrects the multiple IRR problem that occurs with non-conventional cash flows (where signs change multiple times) by providing a single, unique percentage result.