Modified Internal Rate of Return (MIRR)

Capital Budgeting

Updated Apr 2026 • Has calculator

An improved version of IRR that uses separate rates for financing costs and reinvestment returns.

What is MIRR?

Modified Internal Rate of Return (MIRR) fixes two well-known flaws in conventional IRR. First, IRR assumes that positive cash flows are reinvested at the project's own IRR — an unrealistically high assumption for most projects. MIRR instead specifies a realistic reinvestment rate for positive cash flows and a financing rate for negative ones. Second, MIRR always produces a single solution, eliminating the multiple-IRR problem that arises when cash flow signs flip more than once. The result is a more conservative and theoretically sound return metric that is increasingly favoured by CFOs and capital allocators.

Formula

MIRR = (FV_positive ÷ |PV_negative|)^(1/n) − 1

Worked Example

Same 5-year project; finance rate 10%, reinvest rate 8%

Step 1 Initial investment: −$500,000; finance rate: 10%; reinvest rate: 8%

Step 2 FV of positive CFs at 8%: $120K×1.08⁴ + $150K×1.08³ + $180K×1.08² + $160K×1.08 + $130K

Step 3 FV_positive ≈ $817,792

Step 4 MIRR = ($817,792 / $500,000)^(1/5) − 1 = 1.6356^0.20 − 1 ≈ 10.32%

Step 5 → MIRR of 10.32% is more conservative than the IRR because reinvestment is at 8%, not IRR

Source: CFA Institute — Corporate Finance, 4th ed., Capital Budgeting (2024-01-01)

Calculate MIRR

Cash Flows (CF₀, CF₁, CF₂, …)

Enter comma-separated cash flows starting at t=0. Negative values are financed; positive values are reinvested. E.g.: -1000, 300, 400, 500, 200

Finance Rate

Cost of capital for negative cash flows

Reinvestment Rate

Rate at which positive cash flows are reinvested

MIRR

—

Not investment advice.

How to Interpret MIRR

< 5

Below Risk-Free Rate — very weak return

5 – 10

Below Typical Cost of Capital — marginal project

10 – 20

Attractive — above typical hurdle rates

> 20

Excellent — strong risk-adjusted return

📚 Capital Budgeting — Complete the path

Sources