MIRR Calculation Calculator

MIRR Formula:

\[ \text{MIRR} = \left( \frac{\text{FV}_p}{\text{PV}_n} \right)^{\frac{1}{n}} - 1 \]

Modified Internal Rate of Return:

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1. What is MIRR (Modified Internal Rate of Return)?

Definition: MIRR is a financial metric that calculates the return on investment while accounting for the cost of capital and the reinvestment rate of cash flows.

Purpose: It provides a more accurate picture of an investment's profitability than standard IRR by assuming reinvestment at the firm's cost of capital.

2. How Does the MIRR Calculator Work?

The calculator uses the formula:

\[ \text{MIRR} = \left( \frac{\text{FV}_p}{\text{PV}_n} \right)^{\frac{1}{n}} - 1 \]

Where:

\( \text{MIRR} \) — Modified internal rate of return (decimal)
\( \text{FV}_p \) — Future value of positive cash flows (USD)
\( \text{PV}_n \) — Present value of negative cash flows (USD)
\( n \) — Number of periods (dimensionless)

Explanation: The ratio of future value of positive cash flows to present value of negative cash flows is raised to the power of 1/n (where n is number of periods), then 1 is subtracted to get the MIRR.

3. Importance of MIRR in Finance

Details: MIRR is crucial for capital budgeting decisions as it:

Eliminates multiple IRR problem
Provides more realistic reinvestment assumptions
Better reflects cost of capital and investment risk

4. Using the MIRR Calculator

Tips:

Enter all cash inflows as positive values
Enter all cash outflows as negative values
Number of periods should match your investment timeframe
All values must be > 0

5. Frequently Asked Questions (FAQ)

Q1: How is MIRR different from IRR?
A: MIRR assumes reinvestment at the firm's cost of capital, while IRR assumes reinvestment at the IRR itself, which can be unrealistic.

Q2: What's a good MIRR value?
A: Generally, MIRR should exceed the company's cost of capital. Higher values indicate more profitable investments.

Q3: Can MIRR be negative?
A: Yes, a negative MIRR indicates the investment would lose money.

Q4: How do I calculate future value of positive cash flows?
A: Sum all positive cash flows compounded at the reinvestment rate to the terminal period.

Q5: How do I calculate present value of negative cash flows?
A: Sum all negative cash flows discounted at the finance rate to the initial period.