Compute a modified internal rate of return using explicit finance and reinvestment rates.
Ordinary IRR implicitly assumes interim cash flows are reinvested at the IRR itself, which is usually unrealistic and overstates attractive projects. MIRR compounds inflows forward at an explicit reinvestment rate instead. MIRR also avoids the multiple-solution problem that afflicts IRR when cash flows change sign more than once.
Modified IRR
MIRR = (terminal value of inflows ÷ present value of outflows)^(1/n) − 1
MIRR = (terminal value of inflows ÷ present value of outflows)^(1/n) − 1 Ordinary IRR implicitly assumes interim cash flows are reinvested at the IRR itself, which is usually unrealistic and overstates attractive projects. MIRR compounds inflows forward at an explicit reinvestment rate instead.
MIRR also avoids the multiple-solution problem that afflicts IRR when cash flows change sign more than once.
This calculator takes 5 inputs: Initial investment, Annual cash inflow, Project life, Rate at which inflows are reinvested, Cost of financing the outflow. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.