How to Calculate MIRR: The Smarter Way to Evaluate Investment Returns

PensionDestroyer · 2026-01-09T15:41:38+00:00

IRR can mislead investors by assuming reinvestment at the same rate, whereas MIRR offers a realistic approach by using separate finance and reinvestment rates, making it more suitable for real-world investment comparisons.

PensionDestroyer

2026-01-09 15:41:38

Abstract generation in progress

Stop Using IRR Alone—Here’s Why

You’ve probably heard of IRR (Internal Rate of Return), but it’s got a dirty secret: it assumes you’ll reinvest every dollar you pull out at the exact same rate as the original return. Sounds nice, but it’s rarely how the real world works.

That’s where MIRR (Modified Internal Rate of Return) steps in. It lets you plug in realistic reinvestment rates instead of living in fantasy land. If you’re serious about comparing investments or capital projects, MIRR is the metric that should replace blind IRR reliance.

What’s the Difference Between IRR and MIRR?

IRR’s oversimplification: IRR finds the discount rate that zeros out your Net Present Value (NPV). It assumes cash you receive midway through a project gets reinvested back into something earning that same IRR. Unrealistic? Absolutely.

MIRR’s realism: MIRR lets you specify two separate rates:

A finance rate (what you pay to borrow money)
A reinvestment rate (what you actually earn on cash flows you pull out early)

This two-rate system makes MIRR more trustworthy for real-world decisions.

The Math Behind MIRR (Without the Headache)

Rather than remembering the formula, just understand the concept: MIRR adjusts each cash outflow back to the present using your finance rate, and compounds each inflow forward to the end of the project using your reinvestment rate. Then it finds the single discount rate that makes those two sides balance.

In plain English: It forces your interim cash flows into realistic assumptions instead of pretending magic happens.

How to Calculate MIRR in Spreadsheets

This is where theory meets practice.

Excel or Google Sheets syntax:

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