MIRR Calculator
Modified Internal Rate of Return (MIRR) Calculator
Online MIRR (Modified Internal Rate of Return) calculator. Calculate the modified internal rate of return for your investments easily
Table of contents |
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Introduction |
How to use our Mirr Calculator? |
Mirr formula and how to calculate? |
What is Mirr (Modified Internal Rate of Return)?
"MIRR" (Modified Internal Rate of Return). It's a financial metric use to detemine the attractiveness of an investment.
To calculate MIRR we need two thing first, cost of the investment and the second interest rate received on reinvestment of cash flows.
This makes it a more accurate way to measure of profitability of a project as compared to the Internal Rate of Return (IRR). In IRR it is assumed that all cash flows are reinvested at the same rate.
MIRR is often used in capital budgeting and it helps in making decisions of investments.
Below you will see how to calculate mirr with steps on our tool and with mirr calculation example
How to use Mirr Calculator?
1. To calculate your mirr first enter Financing rate in input labeled Financing rate, enter Reinvestment rate in input labeled Reinvestment rate and Enter your initial investment in its box. check below image for reference :
2. Enter number of years in its input. By default its 5 but you can change it. if you change it the inputs for years changes on right side as shown in below images.
3. Now enter annual cashflow for all years as shown in below image. and click calculate button to check your final MIRR (Modified Internal Rate of Return).
4. In the last box you can see your MIRR as shown in below image. You can change your values and click calculate again to see calculated MIRR for your entered values.
MIRR Formula:
The MIRR formula is little different from the IRR formula - you can see, while the future value of positive cash flows is still there is mirr calculation formula, the MIRR metric is not that similar to the NPV equation.
Here is MIRR formula :
\[ MIRR = \left( \frac{PV(C_{i^-}, FR)}{FV(C_{i^+}, RR)} \right)^{\frac{1}{n}} - 1 \]What are all the elements in this equation? Let me write them one by one:
- \( FV \) â€“ Future value of all positive cash flows. Every positive cash flow will be reinvested, increasing your total profit. The formula for \( FV \) is:
- \( n \) â€“ Number of time periods (typically, years) between now and the end of the project.
- \( PV \) â€“ Present value of all negative cash flows. The formula for \( PV \) is:
- \( RR \) â€“ Reinvestment rate â€“ an interest rate expressed as a percentage.
- \( FR \) â€“ Finance rate â€“ loan interest rate.
- \( C_{i^+} \) â€“ Positive cash flow amounts.
- \( C_{i^-} \) â€“ Negative cash flow amounts.
Remember that you have to include only the positive \( C_{i^+} \) values or terms when calculating the \( FV \) value and only the negative \( C_{i^-} \) values or terms when calculating the \( PV \) value!
As the formula is quite complicated, we strongly recommend to use our MIRR calculator instead of calculating it manually through a complicated process.
Example Calculation:
Let's try to find the value of the MIRR for the following case:
Time | Cash flow |
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Initial investment | $20,000 |
Year 1 | $5,000 |
Year 2 | -$3,000 |
Year 3 | $7,000 |
Year 4 | $4,000 |
Year 5 | $6,000 |
Let's assume for now financing rate (FR) of 8% and the reinvestment rate (RR) of 10%. The number of years \( n \) is 5.
- Calculate the future value of positive cash flows:
- Calculate the present value of negative cash flows:
- Plug these values into the MIRR formula:
The MIRR of this case is equal to 3.02%. By comparison, the IRR metric is different. These two values are quite different.