Calculate The Mirr for The Following Stream of Cash Flows

The Modified Internal Rate of Return (MIRR) is a financial metric that accounts for both the cost of reinvesting cash flows and the cost of the initial investment. This calculator helps you compute MIRR for any stream of cash flows.

What is MIRR?

The Modified Internal Rate of Return (MIRR) is an investment performance measure that accounts for the time value of money and the cost of reinvesting cash flows. Unlike the Internal Rate of Return (IRR), MIRR considers both the reinvestment rate and the financing rate, providing a more accurate measure of an investment's profitability.

MIRR is particularly useful when comparing investments with different cash flow patterns and timing. It helps investors understand the true return on investment by accounting for the cost of reinvesting cash flows.

How to Calculate MIRR

Calculating MIRR involves several steps:

Identify all cash flows, including both inflows and outflows.
Determine the financing rate (the cost of the initial investment).
Determine the reinvestment rate (the return earned on reinvested cash flows).
Calculate the present value of all cash flows using the financing rate.
Calculate the future value of all cash flows using the reinvestment rate.
Use the MIRR formula to compute the rate that equates the present value to the future value.

Our calculator automates these steps, providing you with an accurate MIRR result in just a few clicks.

MIRR Formula

The MIRR formula is:

MIRR = [(FV / PV) ^ (1/n)] - 1

Where:

FV = Future value of all cash flows
PV = Present value of all cash flows
n = Number of periods

The future value (FV) is calculated by compounding all cash flows at the reinvestment rate, while the present value (PV) is calculated by discounting all cash flows at the financing rate.

MIRR Example

Consider an investment with the following cash flows:

Period	Cash Flow
0	-10,000
1	3,000
2	4,200
3	6,000

With a financing rate of 10% and a reinvestment rate of 12%, the MIRR calculation would be:

Present Value (PV) = -10,000 + 3,000/(1.10) + 4,200/(1.10)^2 + 6,000/(1.10)^3 ≈ -10,000 + 2,727 + 3,600 + 4,622 ≈ 1,349

Future Value (FV) = -10,000*(1.12)^3 + 3,000*(1.12)^2 + 4,200*(1.12) + 6,000 ≈ -10,000*1.4049 + 3,000*1.2544 + 4,200*1.12 + 6,000 ≈ -14,049 + 3,763 + 4,704 + 6,000 ≈ 0.318

MIRR = [(0.318 / 1,349) ^ (1/3)] - 1 ≈ 0.12 or 12%

MIRR vs IRR

While both MIRR and IRR measure the profitability of an investment, they differ in their approach:

IRR is the discount rate that makes the net present value of all cash flows equal to zero. It does not account for the cost of reinvesting cash flows.
MIRR accounts for both the cost of reinvesting cash flows and the cost of the initial investment, providing a more accurate measure of an investment's profitability.

MIRR is particularly useful when comparing investments with different cash flow patterns and timing, as it provides a more comprehensive view of the investment's performance.

FAQ

What is the difference between MIRR and IRR?

MIRR accounts for both the cost of reinvesting cash flows and the cost of the initial investment, while IRR only considers the discount rate that makes the net present value of all cash flows equal to zero.

When should I use MIRR instead of IRR?

Use MIRR when comparing investments with different cash flow patterns and timing, as it provides a more accurate measure of an investment's profitability by accounting for the cost of reinvesting cash flows.

Can MIRR be negative?

Yes, MIRR can be negative if the investment's cash flows do not cover the cost of reinvesting and the initial investment, resulting in a negative return on investment.