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# How to Calculate MIRR ?

## Modified Internal Rate of Return Calculation, Example

#### Definition

MIRR, also termed as modified internal rate of return is used to measure the profitability of the amount that is invested using the cash flows, reinvestment rate and finance rate. Learn how to calculate MIRR step by step with this simple tutorial.

Formula: FVPV Ratio = FV Positive Cash Flows / -PV of Negative Cashflow
Where, FV = Future Value PV = Present Value
##### Example :

How to Calculate MIRR for an investment with reinvestment rate at 3 % and finance rate at 4 % with cashfows as follows?

##### Given,
 CashFlows Time 2000 2.9 -333 3 7000 2

Reinvestment Rate : 3%

Finance Rate : 4%

##### To Find,

Modified Internal Rate of Return

##### Solution:

MIRR Calculation and Example

###### Step 1 :

Find the Future values for Positive Cash Flows
Cash Flow x ( 1 + Reinvestment Rate ) Difference in time period
Cash Flow at Time 2.9 Time period = 3 - 2.9 = 0.1 Future values for 2.9 = 2000 x ( 1 + 0.03 )0.1                                    = 2000 x ( 1.03 )0.1                                    = 2000 x 1.0029602531457                                    = 2005.92
Cash Flow at Time 2 Time period = 3 - 2 = 1 Future values for 2= 7000 x ( 1 + 0.03 )1                                   = 7000 x (1.003)1                                   = 7000 x 1.03                                   = 7210
Add the positive Cash Flows 2005.92 + 7210 = 9215.92

###### Step 2 :

Calculate the present value of negative cash flows using the finance rate by discounting back to time =0
Net Present Value ( NPV ) = ΣPVt PVt = Ct / ( 1 + i )t
Cash Flow at Time 3 i = 0.04 ( 1 + i )t = ( 1 + 0.04 )3 = 1.124864
Ct = -333
PVt = Ct / ( 1 + i )t PVt = -333 / 1.124864 = −296.04
NPV = ΣPVt Here, we have only one negative cash flow, Hence, NPV = -296.04

###### Step 3 :

Calculate Modified Internal Rate of Return
FVPV Ratio = FV Positive Cash Flows / -PV of Negative Cashflows = 9215.92 / - ( - 296.04 ) = 9215.92 / 296.04 FVPV Ratio = 31.130658019187

###### Step 4 :

Maximum time = 3, we take the 3 root for FVPV ratio Root 3 = 3√31.130658019187 Root 3 = 3.1457878703848 Subtract 1, we get 3.1457878703848 - 1 = 2.1457878703848 MIRR = 214.58 %