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# MIRR

Show All Returns the modified internal rate of return for a series of periodic cash flows. MIRR considers both the cost of the investment and the interest received on reinvestment of cash. Syntax MIRR(values,finance_rate,reinvest_rate) Values is an array or a reference to cells that contain numbers. These numbers represent a series of payments (negative values) and income (positive values) occurring at regular periods.

Values must contain at least one positive value and one negative value to calculate the modified internal rate of return. Otherwise, MIRR returns the #DIV/0! error value. If an array or reference argument contains text, logical values, or empty cells, those values are ignored; however, cells with the value zero are included. is the interest rate you pay on the money used in the cash flows. is the interest rate you receive on the cash flows as you reinvest them.

## Finance_rate Reinvest_rate Remarks

MIRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want and with the correct signs (positive values for cash received, negative values for cash paid). If n is the number of cash flows in values, frate is the finance_rate, and rrate is the reinvest_rate, then the formula for MIRR is:

Example The example may be easier to understand if you copy it to a blank worksheet. How to copy an example A 1 Data 2 -\$120,000 Description Initial cost B

3 39,000 4 30,000 5 21,000 6 37,000 7 46,000 8 10.00% 9 12.00% Formula =MIRR(A2:A7, A8, A9) =MIRR(A2:A5, A8, A9) =MIRR(A2:A7, A8, 14%)

Return first year Return second year Return third year Return fourth year Return fifth year Annual interest rate for the 120,000 loan Annual interest rate for the reinvested profits Description (Result) Investment's modified rate of return after five years (13%) Modified rate of return after three years (-5%) Five-year modified rate of return based on a reinvest_rate of 14 percent (13%)

All NPV, IRR, MIRR, XIRR and XMIRR are used to analyze investments and to choose between 2 investments. These measures allow an investor to find out the rate of return he is earning on his investment. NPV is a number and all the others are rate of returns in percentage. IRR is the rate of return at which NPV is zero or actual return of an investment. MIRR is the actual IRR when the reinvestment rate is not equal to IRR XIRR is the IRR when the periodicity between cash flows is not equal XMIRR is the MIRR when periodicity between cash flows is not equal Net Present Value (NPV) Net Present Value is the current value of a future series of payments and receipts and a way to measure the time value of money. Basically, money today is worth more than money tomorrow. And future money is discounted by the interest rate you specify. Assuming cash flows occur at the end of each period, an NPV with a 10% discount rate would divide the cash flow of period 1 by (1 + 10%) then add the cash flow in period 2 divided by (1 + 10%) ^2, etc. The NPV calculation ends with the last cash flow. The formula for NPV is:

where N is the number of periods, n is a specific period, C is the cash flow for a particular period and r is the discount rate for each period. So in NPV we find the present value off all cash outflows i.e. all the money invested and then we find the present value of all cash inflows i.e. returns generated by an investment. The we subtract cash outflows from cash inflows. The resultant answer is called as NPV or Net Present Value. The rate used to find the present value is called as the Discount Rate and it is the opportunity cost the return which would be generated if this investment is not chosen. Suppose for an investment is Rs. 1500 at 10% discount rate this means that after generating a return of 10% the money remaining is Rs. 1500 i.e. the return is more than 10%. Please remember to set the Discount Rate to Your Time Interval The discount rate you enter must correspond to the period of time between each cash flow. For periodic cash flow analysis, Total Access Statistics does not have date information on when the events occur. If its monthly, you should use 1/12th of your annual rate, for quarterly one-fourth, etc. For most accurate results, take the nth root of your annual discount rate to capture the compounding effect. Internal Rate of Return (IRR) The Internal Rate of Return is used to measure an investments attractiveness. It is the interest rate that makes the NPV equal to zero for the series of cash flows. At least one negative payment and one positive receipt are required to calculate IRR. If this doesnt exist, the result is null. IRR is sometimes called the discounted cash flow rate of return, rate of return, and effective interest rate. The internal term signifies the rate is independent of outside interest rates. Depending on the number of cash flows and their values, IRR can require many iterations to generate an accurate result. Microsoft Excel stops after 20 tries. Suppose for an investment @ 12.24% discount rate the NPV is zero it means after generating 12.24% return no money remains that means that actual return is 12.24% this actual return is called IRR. IRR is based on the following assumptions: 1. The investment is held till maturity. 2. All intermediate cash flows are re-invested at IRR

3. The cash flows should be periodic i.e. the time interval between two cash flows are equal. How to calculate? Enter your Investments (amount which you paid) in each row (you have to put - before each value) Enter the Amount you Received at the end (put + after that amount) Formula: =IRR(values)( place your values put the range of cells which contains values) see below:

Things to NOTE The values need to be a set of Positive and Negative Values The last value is the amount you receive

Any amount Invested will be Negative so if you invest Rs 10000, put -10000 Any amount you Receive will be Positive so if you get Rs 5000, put +5000 All the payment or receiving of money are equidistant, Like 1st of every month OR May 15th Every year All the payments are assumed to be yearly by default. If its some other time frame like monthly or quarterly use XIRR and put specific dates.

XIRR IRR when periodicity of cash flow is not equal What is XIRR and How to Calculate it? IRR does not solve one problem and that is when the payments are at Irregular interval. In that case we use XIRR. So in a Spreadsheet we put the date and the value both. See the example below: How to Calculate Put Date and Value for each row

At the last row put the Date and amount you received Put the formula as: =XIRR(values, dates), values and dates are the cell ranges Use this Spreadsheet to calculate XIRR for yourself

In the above example the CAGR Return was 38.96% (I have multiplied the return by 100 the actual value will be .3896) Real Life scenario when you can use it: Scenario 1: