Modified Internal Rate of Return (MIRR) Calculator

Calculate Modified Internal Rate of Return (MIRR) for your investment cash flows. MIRR improves upon IRR by assuming reinvestment at a realistic rate, providing a more accurate measure of investment profitability.

Investment Cash Flows

Project/Investment Name Optional - for reference

Initial Investment ($)

Negative cash flow at year 0

Finance Rate (%)

Cost of capital / borrowing rate

Reinvestment Rate (%)

Rate at which cash flows are reinvested

Annual Cash Flows ($)

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Enter positive cash flows for each year

Additional Options

Show Calculation Breakdown

MIRR Analysis Results

Investment Summary
Project/Investment	-
Initial Investment	$0.00
Total Cash Flows	$0.00
Net Profit	$0.00
Investment Period	0 years

MIRR & Performance
Modified IRR (MIRR)	0%
Finance Rate	0%
Reinvestment Rate	0%
Future Value of Cash Flows	$0.00
Present Value of Cash Flows	$0.00

Print

MIRR & Investment Insights

Modified IRR (MIRR): Assumes cash flows are reinvested at a realistic rate (reinvestment rate).
MIRR Formula: MIRR = (FV of Positive Cash Flows / PV of Negative Cash Flows)^(1/n) - 1
Finance Rate: Cost of capital or borrowing rate (discounts negative cash flows).
Reinvestment Rate: Rate at which positive cash flows are reinvested.
Advantage: MIRR is more realistic than IRR for reinvestment assumptions.
Typical Benchmarks: Real Estate: 8-12%, Stocks: 7-10%, Startups: 20-40%.
Higher MIRR indicates better investment performance.

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What Is Modified Internal Rate of Return (MIRR)?

Modified Internal Rate of Return (MIRR) is a financial metric used to evaluate the potential return of an investment over multiple periods. Unlike a basic return calculation, MIRR considers both the cost of financing an investment and the rate at which its positive cash flows can be reinvested.

MIRR makes two important assumptions about an investment’s cash flows. Negative cash flows are assumed to be financed at the finance rate, while positive cash flows are assumed to grow at the reinvestment rate until the end of the investment period. This approach provides a clearer picture of how money moves into and out of an investment over time.

MIRR can be considered more realistic than conventional IRR in situations where the assumptions behind IRR do not reflect actual financing and reinvestment conditions. By using separate rates for financing and reinvesting cash flows, it can provide a more practical way to assess an investment's potential return.

You can use a Modified Internal Rate of Return Calculator to calculate MIRR based on your investment's cash flows, finance rate, and reinvestment rate. A MIRR Calculator can make this calculation much easier without requiring you to work through the formula manually.

MIRR Formula and How It Is Calculated

The Modified Internal Rate of Return (MIRR) calculates the return on an investment by considering both the cost of financing and the rate at which positive cash flows can be reinvested. It provides a more practical return measure than a standard IRR when cash flows occur at different times.

The basic MIRR formula is:

MIRR = (Future Value of Positive Cash Flows / Present Value of Negative Cash Flows)^(1/n) − 1

Here is how the calculation works:

Calculate the future value of positive cash flows: Future cash inflows are compounded to the end of the investment period using the reinvestment rate.
Calculate the present value of negative cash flows: Initial investments and other cash outflows are discounted back to the starting point using the finance rate.
Determine the number of periods: The variable n represents the total number of periods, such as years, over which the investment is evaluated.
Calculate MIRR: The future value of positive cash flows is divided by the present value of negative cash flows, raised to the power of 1/n, and then reduced by 1.
Express the result as a percentage: The final value represents the investment's modified rate of return.

Example of MIRR Calculation

Suppose you make an initial investment of $10,000 and receive different cash flows over a 5-year period. The finance rate is 8%, while the reinvestment rate is 10%.

Before calculating the final result, it is important to understand the role of each input. The $10,000 initial investment represents the negative cash flow. The finance rate of 8% is used to determine the present value of the investment outflows, while the 10% reinvestment rate is used to compound the positive cash flows to their future value. The 5-year duration determines how long these cash flows are evaluated.

You can enter these values along with the yearly cash flows into an MIRR Calculator to calculate the final MIRR. The resulting percentage shows the estimated annual return after accounting for both the cost of financing and the assumed reinvestment rate.

How to Use the Modified Internal Rate of Return Calculator

Using the Modified Internal Rate of Return Calculator is simple. Enter your initial investment, finance rate, reinvestment rate, and expected annual cash flows. The calculator will use these details to calculate the MIRR of your investment.

Step 1: Enter the Project or Investment Name

Enter a project or investment name if you want to identify the calculation later. This field is optional and is only for your reference.

Step 2: Enter the Initial Investment

Enter the amount you invest at the beginning of the project in the Initial Investment ($) field.

For example, if your initial investment is $10,000, enter 10,000. The calculator treats this as the negative cash flow at Year 0.

Step 3: Enter the Finance Rate

Enter the Finance Rate (%), which represents the cost of capital or borrowing rate associated with the investment.

For example, if your finance rate is 8%, enter 8.

Step 4: Enter the Reinvestment Rate

Enter the Reinvestment Rate (%), which represents the rate at which the positive cash flows from the investment are assumed to be reinvested.

For example, if your reinvestment rate is 10%, enter 10.

Step 5: Enter the Annual Cash Flows

Enter the expected positive cash flow for each year in the Annual Cash Flows ($) section.

You can enter the cash flow for:

Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10

Only enter the cash flows for the years that apply to your investment. Make sure each cash flow is entered against the correct year.

Step 6: Review Your Inputs

Before calculating, check that your initial investment, finance rate, reinvestment rate, and annual cash flows are correct.

The initial investment represents the Year 0 outflow, while the annual cash flow fields are designed for positive cash inflows.

Step 7: Click Calculate

Once all the required information has been entered, click the Calculate button. The calculator will process your investment data and calculate the Modified Internal Rate of Return.

Step 8: Review Your MIRR Result

The result will show your MIRR as a percentage, helping you understand the estimated return of the investment after considering both the finance rate and reinvestment rate.

Optional: Show Calculation Breakdown

If you want to understand how the result was calculated, select Show Calculation Breakdown. This option can help you review the calculation steps and better understand how the final MIRR was determined.

MIRR vs IRR: What Is the Difference?

Both IRR and MIRR are used to evaluate the potential return of an investment, but they handle cash flows and reinvestment assumptions differently. The Modified Internal Rate of Return (MIRR) is designed to provide a more practical view of an investment by separating the financing and reinvestment assumptions.

Feature	IRR	MIRR
Reinvestment assumption	Assumes cash flows are reinvested at the IRR itself	Uses a user-defined reinvestment rate
Finance rate	Generally not used separately	Uses a separate finance rate
Multiple cash-flow issue	Can produce multiple IRRs when cash flows change direction more than once	Helps avoid the multiple-IRR problem
Practical interpretation	Can sometimes be less realistic	Often provides a more practical return estimate

Reinvestment Assumptions

One of the main differences is how the two methods treat reinvested cash flows. IRR implicitly assumes that intermediate cash flows can be reinvested at the same rate as the calculated IRR. This can sometimes produce an overly optimistic result, particularly when the IRR is very high.

MIRR takes a different approach. It allows you to specify a reinvestment rate for future cash flows and a finance rate for the costs associated with the investment. This makes the result easier to relate to realistic market or business conditions.

Which One Should You Use?

IRR can be useful for a quick assessment of an investment's potential return, while MIRR can be more suitable when you want to use realistic financing and reinvestment assumptions. If you want to calculate the modified return of an investment quickly, you can use a MIRR Calculator to get the result without performing the calculation manually.

Frequently Asked Questions (FAQs)

MIRR stands for Modified Internal Rate of Return. It is a financial metric used to estimate the expected return of an investment while considering more realistic financing and reinvestment assumptions.

The main difference is how they handle financing and reinvestment assumptions. IRR generally assumes that intermediate cash flows are reinvested at the IRR itself, while MIRR allows you to specify separate finance and reinvestment rates, making it more practical for evaluating many investments.

A MIRR Calculator is used to calculate the modified internal rate of return of an investment. It can help you evaluate investment performance by considering the timing of cash flows, financing costs, and the rate at which future cash flows can be reinvested.

Generally, a higher MIRR can indicate a more attractive investment return. However, you should also consider the investment's risk, duration, cash flows, finance rate, and reinvestment assumptions before making a decision.

Yes. MIRR can be negative when an investment's overall cash flows and returns are unfavorable. A negative result generally indicates that the investment does not generate enough value under the specified assumptions.

MIRR requires two key rates: the finance rate, which represents the cost of financing negative cash flows, and the reinvestment rate, which represents the expected return on positive cash flows that are reinvested.