Modified Internal Rate of Return (MIRR) Calculator
Calculate Modified Internal Rate of Return (MIRR) with separate finance and reinvestment rates. Get realistic project returns with cash flow breakdowns and charts.
About This Calculator
The Modified Internal Rate of Return (MIRR) Calculator helps investors, financial analysts, and business owners evaluate project returns by using two separate rates: a finance rate for negative cash flows and a reinvestment rate for positive cash flows. Unlike traditional IRR which assumes all cash flows are reinvested at the same rate, MIRR provides a more realistic picture of project profitability.
The MIRR formula calculates the future value of all positive cash flows compounded at the reinvestment rate and the present value of all negative cash flows discounted at the finance rate. The ratio is then raised to the power of 1/n (where n is the number of periods) and subtracted by 1. This approach eliminates the multiple IRR problem and produces a single, meaningful return metric for capital budgeting decisions.
Regional Notes
India (IN): Indian companies typically use a finance rate of 10-15% based on the weighted average cost of capital (WACC) and a reinvestment rate of 10-12%. The MIRR is widely used in infrastructure and real estate project evaluation where cash flows are uneven and multiple IRR scenarios are common.
United States (US): US corporations commonly use the cost of capital (8-12%) as both finance and reinvestment rates, or follow the modified net present value approach. The MIRR is recommended by many financial textbooks and is used alongside NPV for capital budgeting in Fortune 500 companies.
United Kingdom (UK): UK-based analysts often apply a finance rate based on the company's cost of debt (5-8%) and a reinvestment rate reflecting the return on comparable investments. The MIRR is particularly useful for evaluating property development projects and infrastructure investments where cash flow patterns are irregular.
Frequently Asked Questions
What is the Modified Internal Rate of Return (MIRR)?
MIRR is a financial metric that measures the return on a project by assuming positive cash flows are reinvested at the reinvestment rate and negative cash flows are financed at the finance rate. It provides a more realistic return estimate than traditional IRR by eliminating the unrealistic reinvestment assumption.
How is MIRR different from traditional IRR?
Traditional IRR assumes all cash flows are reinvested at the IRR rate itself, which can be unrealistically high. MIRR allows you to set separate finance and reinvestment rates, giving a more conservative and realistic return estimate. MIRR also avoids the multiple IRR problem that can occur with non-conventional cash flows.
What is the MIRR formula?
The MIRR formula is: MIRR = (FV of positive cash flows at reinvestment rate / PV of negative cash flows at finance rate)^(1/n) - 1, where n is the number of periods, FV is the future value of all positive cash flows compounded at the reinvestment rate, and PV is the present value of all negative cash flows discounted at the finance rate.
What finance rate should I use for MIRR calculation?
The finance rate should reflect your cost of capital or borrowing rate. In India and the US, this is typically the weighted average cost of capital (WACC) or the interest rate on project debt. For UK projects, it may be based on the company's cost of debt or hurdle rate. A common range is 8-15% depending on industry and risk.
What reinvestment rate should I use for MIRR?
The reinvestment rate should reflect the return you can earn on reinvested cash flows. This is typically lower than the IRR and closer to the firm's cost of capital or a conservative market return. For most projects, using 10-12% is reasonable. In India, 12% is common for equity reinvestment; in the US and UK, 8-10% is typical.
Can MIRR be higher than IRR?
Generally, MIRR is lower than IRR when positive cash flows can be reinvested at a rate lower than the IRR. However, MIRR can be higher than IRR when the reinvestment rate exceeds the IRR, which is rare. The difference between IRR and MIRR highlights the impact of reinvestment assumptions on project returns.
Is MIRR better than IRR for project evaluation?
MIRR is generally considered more realistic than IRR because it uses explicit finance and reinvestment rates. It eliminates the multiple IRR problem and provides a single, unambiguous return metric. For capital budgeting decisions in India, US, and UK, analysts often prefer MIRR over IRR for comparing mutually exclusive projects.
How do I use the MIRR calculator?
Enter your initial investment amount, yearly cash flows as comma-separated values, the number of years, the finance rate (your cost of capital), and the reinvestment rate. Click Calculate to see your MIRR, traditional IRR for comparison, future value of positive cash flows, present value of negative cash flows, and a yearly breakdown.