Modified Internal Rate of Return Calculator

FAQs

How do you calculate modified internal rate of return?

The modified internal rate of return (MIRR) is calculated by first determining the future value of positive cash flows (using the reinvestment rate) and the present value of negative cash flows (using the finance cost rate). Then, MIRR is calculated as the discount rate that equates these two values.

Can you calculate MIRR on a financial calculator?

Yes, most financial calculators have functions for calculating MIRR.

What is the difference between IRR and modified internal rate of return?

The main difference lies in how they handle cash flows. IRR assumes reinvestment at the IRR rate, while MIRR assumes reinvestment at a different rate.

What is the difference between NPV and MIRR?

Net Present Value (NPV) calculates the present value of cash inflows and outflows at a specific discount rate, while MIRR considers the cost of financing for outflows and a different rate for reinvestment of inflows.

What is the modified IRR rule?

The modified IRR rule suggests accepting projects with MIRR greater than the finance cost rate and rejecting those with MIRR lower than the finance cost rate.

How do you calculate MIRR in Excel?

In Excel, you can use the MIRR function, specifying the range of cash flows, the finance rate, and the reinvestment rate.

What is MIRR calculator?

An MIRR calculator is a tool, either physical or digital, that helps calculate the modified internal rate of return given cash flows and relevant rates.

Is IRR higher than MIRR?

Not necessarily. It depends on the specific cash flow patterns and the rates involved.

Is 7% a good IRR?

A 7% IRR could be considered good depending on the industry, risk, and opportunity cost of capital.

What are the disadvantages of MIRR?

Disadvantages include complexity in calculation and sensitivity to the chosen reinvestment rate.

When should you use MIRR over IRR?

MIRR is often preferred when there are significant differences between the financing cost and reinvestment rate.

Which is better NPV or IRR or MIRR?

There’s no definitive answer; it depends on the specific circumstances of the investment and the preferences of the decision-maker.

What are the advantages of MIRR over IRR?

Advantages include addressing the issues of reinvestment assumption inherent in IRR and providing a more accurate representation of profitability.

What is the reasoning for calculating a MIRR instead of just the IRR?

MIRR provides a more realistic measure of profitability, considering different rates for reinvestment and financing.

What is the difference between IRR and MIRR in Excel?

The main difference is that IRR calculates the internal rate of return based on the initial investment and cash flows, while MIRR considers both the cost of financing and reinvestment rate.

Can you use Excel to calculate IRR?

Yes, Excel has a built-in function (IRR) to calculate the internal rate of return.

What is MIRR and XIRR?

MIRR calculates the modified internal rate of return, while XIRR calculates the internal rate of return for irregular cash flows.

What is the formula for reinvestment rate?

The reinvestment rate is the rate at which cash inflows are assumed to be reinvested.

What are the three methods of MIRR?

The three methods include:

1. Basic MIRR
2. Annualized MIRR
3. Multiple IRR MIRR

How do you find MIRR by hand?

You can manually calculate MIRR by following the steps outlined in its formula, which involves finding the future value of positive cash flows and the present value of negative cash flows.

What is MIRR in simple words?

MIRR is a financial metric that calculates the internal rate of return adjusted for both the cost of financing and the reinvestment rate.

How does the MIRR function work?

The MIRR function in Excel calculates the modified internal rate of return based on the provided cash flows, financing rate, and reinvestment rate.

What is the best internal rate of return?

There’s no universally “best” internal rate of return; it depends on the specific context and investment criteria.

Can IRR exceed 100%?

Yes, IRR can exceed 100% if the cash flows are significant and the returns are high.

Is 30% IRR too high?

A 30% IRR could be considered exceptionally high and might warrant further scrutiny.

Is an IRR of 20 good?

A 20% IRR could be considered good, but its attractiveness depends on factors such as risk and opportunity cost of capital.

What is one advantage of NPV over the MIRR?

NPV accounts for the timing of cash flows more accurately than MIRR.

Why does a financial manager prefer using IRR?

Financial managers may prefer using IRR because it provides a single percentage figure that summarizes the profitability of an investment.

When should the IRR not be used?

IRR should not be solely relied upon in cases of non-conventional cash flows or when there are multiple IRRs.

What is the decision rule for MIRR?

Accept projects with MIRR greater than the finance cost rate; reject those with MIRR lower than the finance cost rate.

What is the payback rule?

The payback rule suggests accepting projects if they pay back their initial investment within a certain predetermined period.

Is IRR technically superior to NPV?

Neither is technically superior; they offer different perspectives on the same investment.

What is the drawback of MIRR?

One drawback is its complexity compared to simpler metrics like IRR or NPV.

What is MIRR in simple words?

MIRR is a measure used in capital budgeting to estimate the profitability of potential investments, adjusting for both the cost of financing and the reinvestment rate.

How do you calculate internal rate of return without a financial calculator?

You can use trial and error or Excel functions to calculate internal rate of return without a financial calculator.

These responses should cover most of your questions about MIRR, IRR, NPV, and related concepts. Let me know if you need further clarification on any point!