1. What is the MIRR?

The Modified Internal Rate of Return (MIRR) is a financial metric that calculates the return on investment while assuming that positive cash flows are reinvested at the firm's cost of capital and the initial investments are financed at the firm's financing cost.

2. How Does the Calculator Work?

The calculator uses the MIRR formula:

Where:

• \( FV \) — Future Value of positive cash flows
• \( PV \) — Present Value of negative cash flows
• \( n \) — Number of periods

Explanation: The MIRR provides a more realistic measure of an investment's attractiveness than the regular IRR by addressing some of its limitations.

3. Importance of MIRR Calculation

Details: MIRR is crucial for investment analysis as it provides a more accurate picture of an investment's profitability by assuming reinvestment at the cost of capital rather than at the IRR.

4. Using the Calculator

Tips: Enter future value and present value in dollars, and the number of periods. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use MIRR instead of IRR?
A: MIRR provides a more realistic return measure by assuming reinvestment at the cost of capital, eliminating the multiple IRR problem that can occur with unconventional cash flows.

Q2: What are typical MIRR values?
A: MIRR values vary by industry and project risk. Generally, a MIRR higher than the cost of capital indicates a profitable investment.

Q3: How does MIRR handle multiple cash flows?
A: This simplified version assumes a single future value and present value. For multiple cash flows, a more complex calculation is needed.

Q4: What are the limitations of MIRR?
A: MIRR still relies on estimated future cash flows and assumed reinvestment rates, which may not reflect actual market conditions.

Q5: When should MIRR be used over NPV?
A: MIRR is useful when comparing projects of different sizes and durations, while NPV provides the absolute dollar value of an investment.