MIRR

The modified internal rate of return (commonly denoted as MIRR) is a financial measure that
determines the attractiveness of an investment, as well as it can be used to compare different
investments. Essentially, the modified internal rate of return is a modification of the internal rate
of return (IRR) formula

The modified internal rate of return (MIRR) assumes that positive cash flows are reinvested at
the firm's cost of capital and that the initial outlays are financed at the firm's financing cost.
Calculation of MIRR

1/ n
 FVCF 
MIRR    1
 PVCF 
FVCF – the future value of positive cash flows discounted at the reinvestment rate (Taking the
project cash flows from the return phase)

PVCF – the present value of negative cash flows discounted at the financing rate
n – the number of periods

Example:
Pentagon Limited is evaluating a project that has the following cash flow stream associated with
it. The cost of capital for pentagon is 15%

Year 0 1 2 3 4 5 6
Cash -120 -80 20 60 80 100 120
flow