Free MIRR Calculator (Modified Internal Rate of Return)
Calculate the Modified Internal Rate of Return instantly with realistic financing and reinvestment assumptions.
Quick Answer
Quick Answer: MIRR (Modified Internal Rate of Return) is calculated using the formula: MIRR = (FV of positive cash flows at reinvestment rate ÷ PV of negative cash flows at financing rate) ^ (1/n) − 1. It corrects the main flaw in standard IRR by using realistic financing and reinvestment rates instead of assuming all cash flows compound at the project’s own return. Enter your cash flows above to calculate instantly.
Initializing MIRR Engine...
What Is MIRR And Why Does It Matter More Than IRR?
The standard Internal Rate of Return (IRR) has a dirty secret that most finance textbooks gloss over: it assumes you can reinvest every dollar of profit at the same sky-high rate the project itself generates. If a project has an IRR of 28%, IRR assumes you’re reinvesting those interim cash flows at 28% year after year. In the real world, that almost never happens.
The Modified Internal Rate of Return (MIRR) fixes this. Instead of one unrealistic rate doing all the work, MIRR uses two separate, realistic rates:
- Financing rate: the cost of the money you’re borrowing to fund the project (typically your loan APR or WACC).
- Reinvestment rate: the rate you can realistically earn when you reinvest the project’s cash flows (typically your company’s WACC or a conservative market rate like 6–8%).
The result is a return figure that’s more conservative, more accurate, and more defensible in front of a bank, an investor, or your own board.
MIRR is almost always lower than IRR. That’s not a flaw, that’s the point. It’s giving you a realistic number instead of an optimistic one.
The MIRR Formula: Broken Down Simply
The MIRR formula has three moving parts:
MIRR = (FV of Positives ÷ |PV of Negatives|) ^ (1/n) − 1
Where n = number of periods (years)
1Step 1: Calculate the Future Value of all positive cash flows
Compound each cash inflow forward to the end of the project’s life at your reinvestment rate. This tells you what all your profits are worth at the project’s end if reinvested conservatively.
2Step 2: Calculate the Present Value of all negative cash flows
Discount each cash outflow (initial investment plus any future capital expenditures) back to today at your financing rate.
3Step 3: Apply the MIRR formula
MIRR = (FV of Positives ÷ |PV of Negatives|) ^ (1/n) − 1. That’s it. The calculator above does all three steps automatically, but understanding the mechanics means you’ll know exactly what inputs to change when you want to run a sensitivity analysis.
What Rates Should You Actually Use? (The Question Nobody Answers)
This is the question that trips up even experienced analysts. Here’s the practical answer for US businesses:
Financing Rate
Use the interest rate on the debt funding the project. If you took out a bank loan at 7.5% APR to fund the investment, use 7.5%. If you’re using a mix of debt and equity, use your Weighted Average Cost of Capital (WACC). Most US small and mid-size businesses can use their SBA loan rate or their primary line of credit rate as a reasonable proxy.
Reinvestment Rate
Use the rate your business can realistically earn by putting profits to work elsewhere. For most US businesses, this is either their WACC (typically 8–12% for established companies), the S&P 500 long-run average (~10%), or a conservative treasury/money market rate if liquidity is a priority. When in doubt, use WACC for both — this is the most common professional default and keeps your analysis comparable.
What happens when you change these rates:
- A higher reinvestment rate → higher MIRR (more value from reinvested profits)
- A higher financing rate → lower MIRR (more expensive to fund the project)
- When both rates equal the project’s IRR → MIRR equals IRR exactly
A Real-World Example: Evaluating a US Franchise Investment
Let’s say you’re considering buying into a quick-service restaurant franchise in Texas. Total initial investment: $180,000. Expected cash flows over 5 years: $38,000 / $45,000 / $52,000 / $58,000 / $65,000. Your SBA loan rate is 6.5% (financing rate). Your business WACC is 9% (reinvestment rate).
Step 1: Future Value of positive cash flows at 9%:
- Year 1: $38,000 × (1.09)⁴ = $53,633
- Year 2: $45,000 × (1.09)³ = $58,267
- Year 3: $52,000 × (1.09)² = $61,763
- Year 4: $58,000 × (1.09)¹ = $63,220
- Year 5: $65,000 × (1.09)⁰ = $65,000
- Total FV = $301,883
Step 2: Present Value of negative cash flow at 6.5%:
Since the only outflow is at Year 0: PV = $180,000
Step 3: Apply MIRR formula:
MIRR = ($301,883 ÷ $180,000) ^ (1/5) − 1
MIRR = 10.86%
Compare that to the raw IRR on the same project: approximately 15.2%. The IRR sounds more exciting. The MIRR of 10.86% is what you can realistically expect given real-world reinvestment conditions. If your hurdle rate (minimum acceptable return) is 10%, the investment passes, but barely. That context changes the conversation entirely.
MIRR vs. IRR — When to Use Which
Most US corporate finance teams default to IRR because it’s simpler and more widely understood by non-finance stakeholders. But MIRR is the better analytical tool in three specific situations:
Long-duration projects (5+ years)
Over longer timeframes, the compounding gap between IRR’s assumed reinvestment rate and realistic rates grows dramatically. MIRR gives you a much more defensible number for multi-year infrastructure, real estate, or equipment investments.
Non-conventional cash flows (multiple sign changes)
If your project has cash outflows mid-project, a renovation cost in year 3 of a 7-year real estate hold, for example, traditional IRR can produce multiple mathematical solutions. MIRR always produces exactly one.
Comparing projects of similar size
When comparing two projects side-by-side, MIRR is a fairer comparison metric because it standardizes the reinvestment assumption across both. IRR comparisons can be misleading if the projects have different internal return rates but similar external reinvestment opportunities.
The Excel =MIRR() Function: And the Mistake That Wastes Hours
If you’re running this in Excel in addition to using this calculator, here’s the function:
The most common mistake:
Entering all cash flows as positive numbers. Excel’s MIRR function requires outflows to be negative. Your initial investment of $180,000 must be entered as -180,000. If you get an error or a result that looks wildly off, check your signs first — this accounts for the majority of MIRR calculation errors reported by analysts.
Values range:
Include all cash flows in chronological order, starting with the initial negative outflow, followed by each period’s net cash flow. Excel assumes equal time periods (annual by default).
Finance/Reinvestment rate:
Enter as decimals, not percentages. 8% = 0.08.
When MIRR Says No and IRR Says Yes
This happens more often than people expect, and it’s actually MIRR doing its job. If a project has an IRR of 22% but an MIRR of 9.5%, and your hurdle rate is 11%, IRR says “invest” while MIRR says “pass.”
In this scenario, MIRR is almost certainly giving you the more actionable answer. The 22% IRR is only achievable if you can continuously reinvest profits at 22%, which for most US businesses is unrealistic. The 9.5% MIRR is based on what you can actually do with the money. The decision to invest or pass should be based on MIRR in this case.
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