What is the Modified IRR (MIRR)?
The Modified Internal Rate of Return (MIRR) is an improved version of IRR that solves one of IRR’s biggest weaknesses: it assumes all interim cash flows are reinvested at the same IRR, which is often unrealistic. MIRR separates two rates:
- Finance rate: the rate paid on money invested (or borrowed)
- Reinvestment rate: the rate earned when positive cash flows are reinvested
Because of this, MIRR usually gives a more practical estimate of project performance and makes comparing projects easier.
MIRR Formula
Where n is the number of periods between the first and last cash flow. In plain English:
- Take all positive cash flows and compound them to the end of the project.
- Take all negative cash flows and discount them back to the beginning.
- Find the single growth rate that links those two values across n periods.
How to use this Modified IRR Calculator
Step 1: Enter your cash flow series
Input each period’s cash flow in order. The first value is period 0 (today), which is usually a negative initial investment. You can separate values with commas, spaces, or line breaks.
Step 2: Enter finance and reinvestment rates
Finance rate is your cost of capital. Reinvestment rate is what you expect to earn on interim positive cash flows. Enter both as percentages (for example, 8 and 10).
Step 3: Set periods per year (optional)
If cash flows are monthly, set this to 12 to get annualized MIRR in addition to periodic MIRR.
Step 4: Calculate and interpret
The calculator returns periodic MIRR, annualized MIRR (if applicable), and key intermediate values (PV of negatives and FV of positives).
Worked Example
Suppose a project has cash flows: -10,000, 2,500, 3,000, 3,500, 4,000. If finance rate is 8% and reinvestment rate is 10%, MIRR gives a cleaner profitability measure than traditional IRR. You can click Load Example above to run this exact case instantly.
MIRR vs IRR: Why MIRR is often better
- More realistic reinvestment assumption: MIRR uses a user-defined reinvestment rate.
- Single solution: IRR can produce multiple rates for irregular sign changes; MIRR generally avoids this issue.
- Better comparability: MIRR creates cleaner apples-to-apples comparisons across projects.
When to use MIRR
MIRR is especially useful when:
- You need to compare multiple investments with different cash flow patterns.
- Your team has a clear cost of capital and realistic reinvestment assumption.
- You want a decision metric that complements NPV and payback period.
Best Practices for Investment Decisions
Use MIRR as part of a toolkit, not as the only metric. Pair it with:
- NPV: to measure value created in dollar terms
- Sensitivity analysis: test different finance/reinvestment rates
- Scenario modeling: base, upside, and downside cash flow cases
FAQ
Does MIRR replace NPV?
No. MIRR is a rate-of-return metric; NPV is a value metric. Most professionals use both.
Can I use monthly cash flows?
Yes. Enter monthly values in sequence and set periods per year to 12 to see an annualized MIRR.
What if all cash flows are positive or all negative?
MIRR requires at least one negative and one positive cash flow. Otherwise, the metric is not defined.
Final thoughts
If you’ve been using basic IRR, switching to MIRR can immediately improve decision quality. It forces explicit assumptions, reduces ambiguity, and makes project comparisons more grounded in reality. Use the calculator above to quickly test your projects and refine your capital allocation strategy.