MIRR Calculator - Modified Internal Rate of Return

Unlike traditional IRR which assumes cash inflows are reinvested at the project's own internal rate of return, the Modified Internal Rate of Return (MIRR) separates the cost of capital from the reinvestment return rate. The formula calculates the future value of all positive cash flows compounded at the reinvestment rate (rrate), and the present value of all negative cash flows discounted at the finance rate (frate). The MIRR is then derived using the formula: MIRR = [(Future Value of Positive Cash Flows / Present Value of Negative Cash Flows)^(1 / n)] - 1, where n is the number of periods.

Consider an investment project with an initial outlay (Cash Flow 0) of -$10,000, followed by positive cash inflows of $4,000 in Year 1 (Cash Flow 1), $5,000 in Year 2 (Cash Flow 2), and $3,000 in Year 3 (Cash Flow 3). Assume a finance rate (frate) of 8% and a reinvestment rate (rrate) of 10%. First, calculate the future value of positive cash flows compounded at 10% to the end of Year 3, which totals approximately $12,640. Next, find the present value of the negative initial outlay at an 8% finance rate, which is -$10,000. Finally, apply the MIRR formula over the 3-year period to arrive at a Modified Internal Rate of Return of approximately 8.11%, offering a reliable gauge of project viability.

Always ensure your initial cash outflow is entered as a negative number to maintain mathematical accuracy. Choose a finance rate that accurately reflects your actual cost of borrowing or weighted average cost of capital (WACC). Similarly, base your reinvestment rate on realistic market conditions rather than overly optimistic historical returns to prevent distorted project valuations.