What is the Modified Internal Rate of Return (MIRR)?
The MIRR calculator (Modified Internal Rate of Return) helps you evaluate the profitability of any investment project while accounting for two important real-world factors: the cost of financing your initial outlay and the rate at which you can reinvest the profits you earn each year.
Unlike the classic IRR, which implicitly assumes that all positive cash flows are reinvested at the same internal rate, MIRR lets you set two separate rates — a finance rate (the interest rate on borrowed capital) and a reinvestment rate (the return you expect to earn by reinvesting the project's cash inflows). This makes MIRR a more realistic and conservative measure of project performance.
MIRR Formula
The MIRR is defined as:
MIRR = (FV / PV)^(1/n) − 1
Where:
- FV — Future value of all positive cash flows, each compounded forward to the end of the project at the reinvestment rate:
FV = Σ [ Cᵢ⁺ × (1 + RR)^(n − i) ] - PV — Present value of all negative cash flows, each discounted back to year 0 at the finance rate:
PV = C₀ + Σ [ |Cᵢ⁻| / (1 + FR)ⁱ ] - n — Number of periods (years) in the project
- RR — Reinvestment rate (as a decimal)
- FR — Finance rate / loan interest rate (as a decimal)
- C₀ — Initial investment at year 0 (outflow)
- Cᵢ⁺ — Positive cash flow in year i (inflow)
- Cᵢ⁻ — Negative cash flow in year i (additional outflow, absolute value)
How to Calculate MIRR: A Step-by-Step Example
Suppose you invest $10,000 in a project that generates the following cash flows over 3 years:
| Year | Cash Flow |
|---|---|
| 0 | −$10,000 (initial investment) |
| 1 | +$3,000 |
| 2 | +$4,000 |
| 3 | +$5,000 |
Finance rate = 5%, Reinvestment rate = 8%, n = 3.
Step 1 — Compute FV of positive cash flows:
FV = 3,000 × (1.08)² + 4,000 × (1.08)¹ + 5,000 × (1.08)⁰ = 3,000 × 1.1664 + 4,000 × 1.08 + 5,000 = 3,499.20 + 4,320.00 + 5,000.00 = 12,819.20
Step 2 — Compute PV of negative cash flows:
PV = 10,000 (only the initial investment; no other outflows)
Step 3 — Calculate MIRR:
MIRR = (12,819.20 / 10,000)^(1/3) − 1
= 1.28192^0.3333 − 1
≈ 0.0863 → 8.63%
So the MIRR for this project is approximately 8.63%.
MIRR vs IRR: Key Differences
- Reinvestment assumption: IRR assumes profits are reinvested at the same IRR rate; MIRR uses a separate, more realistic reinvestment rate.
- Multiple IRR problem: Projects with alternating cash flows can produce multiple IRR solutions. MIRR always gives a single, unique value.
- Conservative estimate: MIRR is typically lower than IRR, giving a more cautious view of project profitability.
Currencies and Measurement Systems
This calculator supports 28 world currencies including US Dollar (USD), Russian Ruble (RUB), Euro (EUR), British Pound (GBP), and many more. You can also choose between American (1,234.56) and European / Metric (1.234,56) number formats.
Cash flow amounts can be entered in any unit of currency — the MIRR result is a percentage rate independent of the currency or scale of investment.
When to Use MIRR
- Comparing mutually exclusive projects with different scales or durations
- Evaluating any project where financing costs differ from reinvestment returns
- Capital budgeting decisions where IRR produces ambiguous multiple solutions
- Portfolio analysis requiring a realistic, conservative profitability measure