1. What is the MIRR Formula?

The MIRR (Modified Internal Rate of Return) formula calculates the rate of return of an investment considering both the cost of investment and the interest received on reinvestment of cash. It provides a more accurate measure than the standard IRR.

2. How Does the Calculator Work?

The calculator uses the MIRR formula:

Where:

• \( FV \) — Future Value of cash inflows
• \( PV \) — Present Value of cash outflows
• \( n \) — Number of periods

Explanation: The formula calculates the annualized effective compounded return rate that sets the present value of all cash outflows equal to the future value of all cash inflows.

3. Importance of MIRR Calculation

Details: MIRR provides a more realistic measure of an investment's attractiveness than IRR by assuming reinvestment at the project's cost of capital rather than at the IRR rate.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between IRR and MIRR?
A: MIRR assumes reinvestment at the cost of capital, while IRR assumes reinvestment at the internal rate of return, making MIRR more realistic.

Q2: When should I use MIRR instead of IRR?
A: Use MIRR when you have multiple cash flows and want a more conservative estimate that assumes reinvestment at a safer rate.

Q3: What are typical MIRR values?
A: MIRR values vary by industry and risk profile. Generally, a MIRR higher than the cost of capital indicates a good investment.

Q4: Can MIRR be negative?
A: Yes, if the future value is less than the present value, indicating a loss on the investment.

Q5: How does the number of periods affect MIRR?
A: More periods generally result in a lower MIRR for the same FV/PV ratio, as the return is annualized over a longer timeframe.