Modified IRR Calculator

Understanding Modified Internal Rate of Return (MIRR)

The Modified Internal Rate of Return (MIRR) is a financial metric used to evaluate the profitability of an investment or project. Unlike the standard Internal Rate of Return (IRR), MIRR resolves two major flaws of traditional IRR: the assumption that positive cash flows are reinvested at the IRR itself, and the possibility of multiple IRRs for projects with alternating positive and negative cash flows.

The MIRR Formula

MIRR assumes positive cash flows are reinvested at the firm's reinvestment rate (such as cost of capital or money market yield) and initial/intermittent negative cash flows are discounted at the financing rate:

Why MIRR Is Superior to Standard IRR

• Realistic Reinvestment Rate: Traditional IRR assumes cash inflows can be reinvested at the project's IRR (which may be unrealistically high). MIRR lets you specify a realistic reinvestment rate.
• Unique Solution: Standard IRR can produce multiple rates of return for non-normal cash flow streams. MIRR always yields a single, unambiguous result.
• Accurate Ranking: MIRR provides a more reliable metric when ranking mutually exclusive capital budgeting projects.

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