Mirr Calculator With Wacc Function

MIRR Formula with WACC:

\[ MIRR = \left( \frac{FV_{\text{positive}}}{PV_{\text{negative}}} \right)^{\frac{1}{n}} - 1 \]

Future Value of Positive Cash Flows (FV_positive):

Present Value of Negative Cash Flows (PV_negative):

Number of Periods (n):

periods

Weighted Average Cost of Capital (WACC):

Adjusted MIRR with WACC:

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1. What is MIRR with WACC?

The Modified Internal Rate of Return (MIRR) with Weighted Average Cost of Capital (WACC) adjustment provides a more accurate measure of an investment's profitability by considering the cost of capital and reinvestment rate.

2. How Does the Calculator Work?

The calculator uses the MIRR formula with WACC adjustment:

\[ MIRR = \left( \frac{FV_{\text{positive}}}{PV_{\text{negative}}} \right)^{\frac{1}{n}} - 1 - \frac{WACC}{100} \]

Where:

\( FV_{\text{positive}} \) — Future value of positive cash flows
\( PV_{\text{negative}} \) — Present value of negative cash flows
\( n \) — Number of periods
\( WACC \) — Weighted Average Cost of Capital (as percentage)

Explanation: The formula calculates the modified internal rate of return and adjusts it by subtracting the cost of capital to provide a net return measure.

3. Importance of MIRR Calculation

Details: MIRR with WACC adjustment helps investors and companies evaluate investment projects more accurately by accounting for the cost of capital and providing a better measure of true profitability.

4. Using the Calculator

Tips: Enter future value of positive cash flows, present value of negative cash flows, number of periods, and WACC percentage. All values must be positive (except WACC which can be zero).

5. Frequently Asked Questions (FAQ)

Q1: Why use MIRR instead of IRR?
A: MIRR provides a more realistic measure by assuming reinvestment at the cost of capital rather than the IRR, which can be overly optimistic.

Q2: What is a good MIRR value?
A: A positive MIRR after WACC adjustment indicates the project creates value. The higher the MIRR above WACC, the better the investment.

Q3: How does WACC affect MIRR?
A: WACC represents the minimum acceptable return. Subtracting WACC from MIRR shows the excess return over the cost of capital.

Q4: When should MIRR with WACC be used?
A: This calculation is particularly useful for capital budgeting decisions and comparing investment projects with different cash flow patterns.

Q5: What are the limitations of this approach?
A: The accuracy depends on correct estimation of future cash flows and an appropriate WACC. It may not capture all risk factors in complex investments.