The formulas
- Terminal value = sum of positive CF_t x (1 + reinvestment rate)^(n - t)
- PV of outflows = initial investment + sum of negative CF_t / (1 + finance rate)^t
- MIRR = (terminal value / PV of outflows)^(1/n) - 1
How it works
IRR assumes every inflow is reinvested at the IRR itself. For a high-IRR project that overstates the return, because few businesses can redeploy cash at that rate. MIRR replaces that assumption: inflows compound at a reinvestment rate you choose, and outflows are discounted at your finance rate.
MIRR always has one answer, even when cash flows change sign more than once and IRR has several roots. Set project life to the number of years you entered. Years after the life you set are ignored.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
What reinvestment rate is sensible?
The return you expect on the next available use of cash, often the cost of capital.
Why is MIRR below IRR here?
The reinvestment rate is below the IRR. For a project with one outflow at the start, setting the reinvestment rate equal to the IRR makes MIRR equal IRR.
What does the finance rate do?
It discounts negative cash flows after year zero back to today, as money set aside to meet them.
Formulas on this page are the standard definitions.
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