Mirr Calculator With Wacc Numbers

MIRR Formula:

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

Future Value of Positive Cash Flows (FV_positive):

Present Value of Negative Cash Flows (PV_negative):

Number of Periods (n):

periods

Modified Internal Rate of Return (MIRR):

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1. What is MIRR with WACC Numbers?

The Modified Internal Rate of Return (MIRR) is a financial metric that addresses some limitations of the traditional IRR. When using WACC (Weighted Average Cost of Capital) numbers, MIRR provides a more realistic measure of investment profitability by assuming reinvestment at the firm's cost of capital rather than the project's IRR.

2. How Does the Calculator Work?

The calculator uses the MIRR formula:

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

Where:

\( FV_{\text{positive}} \) — Future value of positive cash flows
\( PV_{\text{negative}} \) — Present value of negative cash flows
\( n \) — Number of periods

Explanation: The formula calculates the rate of return that equates the future value of positive cash flows (reinvested at the reinvestment rate) with the present value of negative cash flows (discounted at the finance rate).

3. Importance of MIRR Calculation

Details: MIRR provides a more conservative and realistic measure of investment profitability compared to IRR. It eliminates the multiple IRR problem and assumes more realistic reinvestment rates, making it particularly valuable for capital budgeting decisions.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between IRR and MIRR?
A: IRR assumes reinvestment at the project's internal rate, while MIRR assumes reinvestment at the firm's cost of capital (WACC), providing a more realistic measure.

Q2: When should I use MIRR instead of IRR?
A: Use MIRR when you have unconventional cash flows, multiple IRRs, or when you want a more conservative estimate that reflects realistic reinvestment assumptions.

Q3: How does WACC affect MIRR calculation?
A: WACC is used as the reinvestment rate for positive cash flows and the financing rate for negative cash flows in the comprehensive MIRR calculation.

Q4: What is a good MIRR value?
A: A good MIRR should be higher than the company's WACC. The higher the MIRR above WACC, the more attractive the investment.

Q5: Can MIRR be negative?
A: Yes, MIRR can be negative if the future value of positive cash flows is less than the present value of negative cash flows, indicating a loss-making investment.