1. What is 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 that the initial outlays 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 important for investment analysis as it provides a more accurate measure of profitability by assuming reinvestment at the cost of capital rather than at the IRR, which is often unrealistic.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between IRR and MIRR?
A: MIRR assumes reinvestment at the cost of capital, while IRR assumes reinvestment at the IRR itself, which can be unrealistic.

Q2: When should I use MIRR instead of IRR?
A: Use MIRR when you want a more conservative and realistic estimate of an investment's return, especially when cash flows are irregular.

Q3: What are typical MIRR values for good investments?
A: A MIRR higher than the company's cost of capital indicates a potentially good investment. The higher the MIRR, the better the investment.

Q4: Can MIRR be negative?
A: Yes, if the present value of costs exceeds the future value of returns, MIRR can be negative, indicating a loss-making investment.

Q5: How does the number of periods affect MIRR?
A: More periods generally mean the investment has more time to generate returns, but also means the money is tied up for longer.