Modified Internal Rate of Return or MIRR is the discount rate that equates the present value of investments (outflows) with the future value of incoming cash flows (inflows):
\begin{align} \sum_{i=0}^{t}\frac {COF_{i}}{(1+r)^{i}} &=\frac {\sum_{i=0}^{t}CIF_{i}(1+r)^{t-i}}{(1+MIRR)^{t}} \\ PV_{COF} &=\frac {FV_{CIF}}{(1+MIRR)^{t}} \\ MIRR &= \sqrt[t]{\frac{FV_{CIF}}{PV_{COF}}}-1 \end{align}
t— number of periods;
r— discount rate (e.g., weighted average cost of capital);
COF— cash outflow;
CIF— cash inflow.
See also:
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Profitability Index (PI)
- Future Value
- Present Value
- Present Value of Annuity
MIRR FAQ
What is MIRR?
MIRR is the Modified Internal Rate of Return, a return measure that uses financing and reinvestment rates.
How is MIRR different from IRR?
MIRR separates the rate used for negative cash flows from the rate used to reinvest positive cash flows, which can make it more realistic.
