The formula to calculate the Modified Internal Rate of Return (MIRR) is:
\[ MIRR = \left( \frac{FV_{\text{positive}}}{PV_{\text{negative}}} \right)^{\frac{1}{n}} - 1 \]
Where:
A MIRR (Modified Internal Rate of Return) is a financial metric used in capital budgeting and corporate finance. It is a modification of the traditional internal rate of return (IRR) calculation, which addresses some of the IRR’s limitations. The MIRR considers both the cost of the investment (the finance rate) and the interest received on the reinvestment of cash (the reinvestment rate). It assumes that positive cash flows are reinvested at the reinvestment rate and the initial outlays are financed at the finance rate. Therefore, MIRR more accurately reflects the cost and profitability of a project, making it a useful tool for comparing different investment opportunities.
Let's assume the following values:
Using the formula to calculate the MIRR:
\[ MIRR = \left( \frac{10000}{5000} \right)^{\frac{1}{5}} - 1 \approx 0.1487 \]
The MIRR is approximately 0.1487 or 14.87%.
