What this calculator does
The ordinary internal rate of return assumes every cash flow received is reinvested at the IRR itself, which is rarely true and flatters good projects badly. MIRR fixes that by letting you state a realistic reinvestment rate separately from the cost of the money invested.
The correction usually pulls the figure down. Using a 6 per cent reinvestment rate rather than an optimistic one gives a MIRR of 6.43 per cent on this project, below the 8 per cent finance rate, which reverses the conclusion an ordinary IRR would suggest.
The formula
All negative flows are discounted back to the present at the finance rate, and all positive flows are compounded forward to the final period at the reinvestment rate. MIRR is the rate that links those two figures over the project life.
| Term | Meaning |
|---|---|
| Finance rate | The cost of the capital funding the outflows. |
| Reinvestment rate | The realistic return available on cash the project throws off. |
| MIRR | The single rate connecting the present value of outflows to the future value of inflows. |
The inputs explained
| Field | What to enter |
|---|---|
| Initial investment (year 0 outflow) ($) | The initial investment at year zero. |
| Cash flows, year 1 onward (comma separated, negative = outflow) | Cash flows from year one onward, comma separated. Negative values are further outflows. |
| Finance rate (cost of the capital used) (%) | The finance rate, being what the invested capital costs. |
| Reinvestment rate (return on positive flows) (%) | The reinvestment rate, being what returned cash can realistically earn. |
When to use it
Correcting an optimistic IRR
Where IRR is well above the cost of capital, the reinvestment assumption is doing most of the work.
Handling a project with mid-life outflows
MIRR produces one unambiguous answer where IRR can produce several.
Comparing projects of different sizes
A consistent reinvestment assumption puts them on the same basis.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much does the reinvestment rate matter?
The same project under three reinvestment assumptions.
Questions
What is wrong with ordinary IRR?
It implicitly assumes every dollar the project returns is reinvested at the IRR itself. For a project showing a 25 per cent IRR, that assumes you can keep finding 25 per cent opportunities, which is usually unrealistic and inflates the result.
Why does IRR sometimes give multiple answers?
Because a cash flow pattern that changes sign more than once can satisfy the IRR equation at several rates. MIRR avoids this entirely by collapsing the flows to two figures before solving.
Which rates should be used?
The finance rate should be your cost of capital, and the reinvestment rate should be what returned cash can realistically earn, which is often lower. Setting both equal to the cost of capital is a common conservative choice.
Is MIRR better than NPV?
Not better, different. NPV gives the value created in dollars and is the theoretically sounder measure. MIRR gives a rate, which is easier to compare against a hurdle and easier for many people to interpret.
For net present value and ordinary IRR, see the NPV and IRR calculator. For how long the investment takes to return, see the payback period calculator.