Mirr Calculator With Wacc Formula

MIRR Formula:

\[ MIRR = \left( \frac{FV \times (1 + WACC)^n}{PV} \right)^{\frac{1}{n}} - 1 \]

Future Value (FV):

Present Value (PV):

Periods (n):

years

WACC:

Modified Internal Rate of Return (MIRR):

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1. What is the MIRR with WACC Formula?

The MIRR (Modified Internal Rate of Return) with WACC (Weighted Average Cost of Capital) formula provides a more accurate measure of an investment's profitability by assuming reinvestment at the firm's cost of capital rather than the IRR's internal rate.

2. How Does the Calculator Work?

The calculator uses the MIRR formula:

\[ MIRR = \left( \frac{FV \times (1 + WACC)^n}{PV} \right)^{\frac{1}{n}} - 1 \]

Where:

$ FV $ — Future Value of cash inflows ($)
$ PV $ — Present Value of cash outflows ($)
$ n $ — Number of periods (years)
$ WACC $ — Weighted Average Cost of Capital (as decimal)

Explanation: This formula adjusts for the cost of capital and provides a more realistic measure of investment returns compared to traditional IRR.

3. Importance of MIRR Calculation

Details: MIRR provides a better indication of an investment's true profitability by using more realistic reinvestment assumptions and avoiding the multiple IRR problem that can occur with unconventional cash flows.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why use MIRR instead of IRR?
A: MIRR provides a more realistic measure by assuming reinvestment at the firm's cost of capital rather than the project's IRR, and avoids the multiple IRR problem.

Q2: What is a good MIRR value?
A: A MIRR higher than the company's required rate of return or WACC indicates a potentially good investment. The higher the MIRR, the better the investment.

Q3: How is WACC different from discount rate?
A: WACC represents the average rate a company expects to pay to finance its assets, while discount rate is the rate used to discount future cash flows to their present value.

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

Q5: What are the limitations of MIRR?
A: MIRR still relies on estimated future cash flows and assumes a constant reinvestment rate, which may not reflect real-world conditions.