Corporate finance
What is MIRR?
MIRR discounts outflows to the start and compounds inflows to the end, then finds the equivalent annual rate.
Definition
MIRR discounts outflows to the start and compounds inflows to the end, then finds the equivalent annual rate.
Intuition
It assigns an explicit reinvestment assumption to interim receipts instead of using the IRR itself.
Formula
Compound positive flows to the final year, discount negative flows to year zero, and annualize their ratio.
Variables and limits
N is the last cash-flow year. Positive flows compound to N at the reinvestment rate; negative flows discount to year 0 at the finance rate. Flows occur at year end and both rates remain fixed.
Example
- Enter initial outlay 1,000, year-1 inflow 500, and year-2 inflow 700.
- At a 10% finance rate and 8% reinvestment rate, positive flows compound to 500×1.08+700 = 1,240 at year 2.
- Negative-flow PV is 1,000; MIRR = (1,240/1,000)^(1/2)−1 ≈ 11.36%.
Common mistakes
MIRR does not remove forecast risk; finance and reinvestment rates and cash-flow timing still matter.
Frequently asked questions
How does MIRR differ from IRR?
MIRR explicitly specifies reinvestment and finance rates; IRR solves for a rate that makes NPV zero.
Can MIRR be calculated with multiple IRRs?
With positive and negative flows and valid rates, MIRR can be calculated; the comparison will not arbitrarily choose one IRR root.
Can the two rates differ?
Yes. Negative flows are discounted to year 0 and positive flows compounded to the final year using separate assumptions.