Financial modelling terms explained

Modified Internal Rate of Return (MIRR)

The modified internal rate of return (MIRR) is a method for finding a discount rate for present value analysis. MIRR is the interest rate that sets the net present value of a series of cash flows to zero.

What Is MIRR?

MIRR, or the Modified Internal Rate of Return, is a financial metric that is used to compare different investment opportunities. It takes into account both the initial investment and the subsequent cash flows (both positive and negative) to determine a rate of return that is equal to the investment's internal rate of return. This makes it a more accurate way to compare opportunities than the standard IRR metric, which does not take into account the time value of money.

How Do You Calculate MIRR?

MIRR is the acronym for Modified Internal Rate of Return. It is a metric used to calculate the profitability of an investment. The MIRR compares the cash flows of an investment to the cost of the investment.

To calculate MIRR, you need to know the following:

1. The cash flows of the investment, including the initial investment, the cash flows over the life of the investment, and the final cash flow.

2. The cost of the investment.

3. The interest rate.

Once you have these figures, you can calculate MIRR as follows:

1. Calculate the present value of the cash flows using the interest rate.

2. Subtract the present value of the cash flows from the cost of the investment.

3. Divide the result by the initial investment.

4. Take the square root of the result.

This is the MIRR.

Why Is MIRR Useful?

MIRR is a popular financial metric used to compare the profitability of two or more investment proposals. It takes into account both the cash flow received and the timing of those cash flows, making it a more accurate measure of profitability than, for example, the simple return on investment (ROI). MIRR is particularly useful when comparing projects with different cash flow schedules, as it allows for a more apples-to-apples comparison.

What Are Some Examples of MIRR?

MIRR, or Modified Internal Rate of Return, is a metric used to determine the profitability of an investment. It takes into account both the initial investment and the anticipated cash flows, or profits, of that investment. There are a few different ways to calculate MIRR, but all methods attempt to find the rate of return that makes the net present value of the investment's cash flows equal to zero. Some common examples of investments with predictable cash flows are bonds and mortgages.

How Do You Calculate MIRR for a Series of Cash Flows?

The Modified Internal Rate of Return (MIRR) is a way to calculate the rate of return for a series of cash flows that are not necessarily all positive or all negative. To calculate the MIRR for a series of cash flows, you need to know the initial investment, the cash flows that occur after the initial investment, and the final investment. The MIRR is the rate of return that makes the net present value of the cash flows equal to zero.

What Are Some Other Names for MIRR?

MIRR, or the Modified Internal Rate of Return, is a financial metric used to evaluate the profitability of an investment. The MIRR takes into account both the initial investment and the potential future cash flows associated with that investment. There are a number of other names for the MIRR, including the Modified Internal Rate of Return, the Modified Capital Recovery Method, and the Modified Payback Method.

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