HesapHanem

Modified Internal Rate of Return Calculator

Work out your investment's Modified Internal Rate of Return (MIRR) using a realistic reinvestment assumption instead of the plain IRR's single-rate shortcut.

How it is calculated

The engine compounds the yearly inflows forward at the reinvestment rate, compares that pile with the money put in, and takes the n-th root.

FV = CF × ((1 + r)n − 1) ÷ r
MIRR = (FV ÷ I)1/n − 1

CF is the equal cash flow per year in dollars, r the reinvestment rate as a decimal (10% = 0.10), n the years and I the initial investment. If the reinvestment rate is exactly 0, FV is simply CF × n. Because the single outlay sits at time zero, it is not discounted: the finance rate is accepted as an input but does not change the result. Investment must be positive, cash flow cannot be negative, years must be above 0 and at most 100, and a reinvestment or finance rate of −100% or lower gives no result.

Worked example

Invest $100,000, receive $25,000 a year for 5 years, reinvest at 10%. The growth factor is 1.105 = 1.61051, so FV = 25,000 × (1.61051 − 1) ÷ 0.10 = $152,627.50. The ratio FV ÷ I is 1.526275, and its fifth root minus one gives a MIRR of 8.82% a year. Changing the finance rate from 8% to 20% leaves this unchanged, because nothing is discounted back. Total invested is shown as $100,000.00.

Try this example →

Common mistakes

  • Expecting the finance rate to move the answer. With the initial outlay at time zero, the engine does not use it; changing it from 8 to 20 gives the identical MIRR.
  • Entering rates as decimals. The fields take percent, so 10 means 10%; typing 0.10 reinvests at 0.1%.
  • Comparing MIRR directly with IRR from another tool and calling the gap an error. MIRR assumes your own reinvestment rate, so it is normally lower than IRR on a high-return project.
  • Entering zero cash flow to test a total loss. The tool returns -100.00% rather than refusing, which is correct for losing everything but easy to mistake for a bug.
  • Using it for uneven cash flows. Every year receives the same amount, so a project with a large final payout needs a different approach.

About this calculator

The Modified Internal Rate of Return (MIRR) fixes a well-known weakness of the plain IRR (Internal Rate of Return): standard IRR implicitly assumes that all interim cash flows are reinvested at the same rate as the project's own IRR, which is often unrealistic — a project with a 30% IRR is unlikely to have other opportunities also paying 30%. MIRR instead lets you specify a separate finance rate (the cost of the capital used to fund the investment) and reinvestment rate (a realistic rate, such as a money-market or portfolio return, at which interim cash flows can actually be reinvested), then compounds the positive cash flows forward at the reinvestment rate and discounts the negative cash flows back at the finance rate to solve for a single rate of return. Here the only outlay is the initial investment at time 0, which needs no discounting, so the finance rate does not change the result; the reinvestment rate does.

Corporate finance teams, capital-budgeting analysts, and private-equity professionals use MIRR alongside NPV (Net Present Value) when comparing mutually exclusive investment projects, because MIRR also avoids IRR's mathematical quirk of producing multiple or no real solutions when a project's cash flows change sign more than once (for example, a large cash outflow midway through a project). A single, unambiguous MIRR value makes it easier to rank competing projects on a like-for-like basis.

Was this helpful?

You can pick up to 3 reactions.

Comments

  • Be the first to comment.

Popular calculators

Loan Calculator

Monthly payment, total interest and full amortization schedule.

Percentage Calculator

Percent change, percent of, and ratio calculations.

Discount Calculator

Calculate final price, savings, and discount amount.

BMI Calculator

Body mass index from height and weight (metric or imperial).

Age Calculator

Compute your exact age in years, months and days from a birth date.

Compound Interest Calculator

Calculate the final amount and interest earned with compounding.

All Calculators