0
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$207,883
$100,000
100
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0
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$207,883
$100,000
100
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The MIRR Calculator (Modified Internal Rate of Return) addresses the key shortcomings of the traditional IRR by using separate rates for financing costs and reinvestment returns. While IRR unrealistically assumes all cash flows are reinvested at the IRR itself, MIRR uses a more realistic reinvestment rate — typically the firm's cost of capital or a market rate.
MIRR was developed to solve two fundamental problems with IRR: the reinvestment rate assumption and the multiple IRR problem. Traditional IRR assumes intermediate positive cash flows are reinvested at the IRR rate, which can be unreasonably high (e.g., 30-40%). In reality, companies typically reinvest at their cost of capital (8-12%). MIRR corrects this by explicitly specifying the reinvestment rate.
The MIRR calculation involves three steps: (1) bring all negative cash flows to present value using the finance rate, (2) compound all positive cash flows to terminal (future) value using the reinvestment rate, and (3) find the rate that equates the PV of negatives to the FV of positives over the investment period.
MIRR always produces a single, unique solution, eliminating the multiple-IRR problem that plagues conventional IRR when cash flows change sign more than once. This makes MIRR more reliable for complex projects with interim capital expenditures, environmental cleanup costs, or other negative cash flows during the project's life.
The finance rate represents the cost of borrowing or the cost of funding negative cash flows. This is typically the company's cost of debt or WACC. The reinvestment rate represents the return earned on positive cash flows until the end of the project. This is often set to the company's WACC, a money market rate, or an expected portfolio return.
MIRR is generally lower than IRR because it uses a realistic reinvestment rate rather than the (often inflated) IRR itself. This makes MIRR a more conservative and arguably more accurate measure of project attractiveness. Many finance textbooks and practitioners now recommend MIRR over IRR for capital budgeting decisions.
The MIRR formula: MIRR = (FV of Positive CFs / PV of Negative CFs)^(1/n) - 1
MIRR provides a more conservative and realistic return estimate than IRR. Compare MIRR to your cost of capital: if MIRR exceeds WACC, the project creates value. The gap between MIRR and traditional IRR indicates how sensitive the project is to reinvestment assumptions — a large gap suggests the IRR was overstated.
Inputs
Results
MIRR of 14.29% with 10% reinvestment rate
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Results
Conservative assumptions with 8% reinvestment
MIRR uses realistic reinvestment assumptions (your actual cost of capital) instead of assuming reinvestment at the often-inflated IRR. It also always produces a single unique answer, eliminating the multiple-IRR problem.
Finance rate: your cost of debt or WACC (typically 5-10%). Reinvestment rate: your company's WACC or expected market return (typically 8-12%). Some analysts use the same rate (WACC) for both.
Usually yes, because MIRR uses a lower reinvestment rate. The exception is when IRR is below the reinvestment rate, in which case MIRR would be higher. For most positive-NPV projects, MIRR < IRR.
Use =MIRR(values, finance_rate, reinvestment_rate). For example: =MIRR({-100000, 25000, 30000, 35000, 40000, 45000}, 8%, 10%) returns the MIRR.
Use MIRR when: (1) cash flows change sign multiple times, (2) the IRR seems unrealistically high, (3) you want a more conservative estimate, or (4) you need to compare projects with different scales or durations.
Yes, if the future value of positive cash flows is less than the present value of negative cash flows. This means the project destroys value — you receive back less than you invested, even after accounting for reinvestment returns.
MIRR separates positive and negative cash flows. Negative cash flows are discounted to present value at the finance rate. Positive cash flows are compounded to future value at the reinvestment rate. This eliminates the multiple-root problem.
A good MIRR exceeds your cost of capital (WACC). For corporate projects, this typically means MIRR > 8-12%. For private equity, targets are 15-20%. Any MIRR above your hurdle rate indicates a value-creating project.
If MIRR > WACC, NPV is positive (project creates value). If MIRR < WACC, NPV is negative. MIRR and NPV always agree on accept/reject decisions, unlike IRR which can conflict with NPV for mutually exclusive projects.
IRR is more widely known and understood, it doesn't require specifying reinvestment assumptions, and for simple projects with conventional cash flows, IRR and MIRR give similar accept/reject decisions. Industry convention in PE and VC still favors IRR.
Roboculator Team
The Roboculator Team explains calculations, planning tools, and practical formulas in clear language for real-life situations.
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