Think & Done

Here we will have an in depth view of the way Modified Internal Rate of Return or MIRR is used to decide financial viability of an investment. You will find a definition, formula, example, calculation with MIRR along with a free online mirr calculator.
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Online MIRR Calculator

Here you will find a Free Online MIRR calculator that computes modified internal rate of return when you provide net cash flows and weighted average cost of capital commonly called the discount rate. It is as easy to use as typing in the net cash flows and clicking on the Compute button.

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Minimum System Requirements
MS Windows XP or higher with MS .net runtime support Pentium III 550Mhz or faster RAM 256MB atleast

MIRR Definition

Modified Internal Rate or Return or MIRR is the investor's required rate of return which equates the Initial Cost Outlay with the present value of Terminal Value. In other words MIRR is the rate at which the difference between ICO and present value of future value of cash inflows in zero.

MIRR Formula

MIRR Example

Let us illustrate finding Modified Internal Rate of return with an example investment proposal. Let us say you were offered a series of cash inflows at the end of each of the next four years as $5000, $4000, $3000, and $1000 at a discount rate of 10%. We assume the Initial Cost Outlay for this proposal is $10,000.

Initial MIRR Guess

We need to start off finding the future value of series of the cash inflows at a rate or return that we will arbitrarily guess to be 10%. If the Present Value of this Terminal value is higher than the initial cash outlay we will take a second guess at a higher rate or return otherwise we will chose the second rate to be smaller value than our first guess.

PV at 10%

MIRR Guess 2nd Time

As you notice at 10% discount rate PV of TV is $788 more than the Initial Cost Outlay, we will second guess the new rate to bring down the PV of TV to a value lower than $10,000 or our initial cost outlay. We have selected 15% rate of return as you see in the table below

PV at 15%

Linear Interpolation

This time we have a PV of TV that is $969 less than the initial cost outlay of $10,000. Thus we deduce the modified internal rate of return lies somewhere between 10% and 15%. Here we will need to use a process called Linear Interpolation to arrive at a close estimate of the original rate of return. The diagram below illustrates this process. As you notice we will add the rate of return at which we had a higher PV with the product of higher PV and delta rate or return ( the difference between the higher and lower rates we used ) and divided by delta PV ( the range of lower and higher PV we arrived at earlier ). The resulting value is our MIRR or Modified Internal Rate or Return

User submitted IRR Questions/Problems

Dawn Orndoff from Asked:

Turnball Corp is in the process of constructing a new plant at a cost of 30 million. It expects generate cash flows of 13,000,000, 23,000,000 and 29,000,000 over the the next three years. The cost is 20 percent. What is the MIRR in this project.

admin from Replied:

Hi Dawn

MIRR = 35.91%

See the attached MS Excel Worksheet for calculations, MS Excel has a MIRR function that accepts the cash flows, discount rate and reinvestment rate ( both of which are 20% )

Download MS Excel Worksheet to find solution with MS Excel MIRR function