~1 min read
MIRR (Modified Internal Rate of Return) fixes a key flaw in standard IRR: the assumption that all cash inflows are reinvested at the IRR itself — which is usually unrealistically high.
MIRR formula
MIRR = (FV of positive cash flows at reinvestment rate / PV of negative cash flows at finance rate) ^ (1/n) − 1
Where n = number of periods.
MIRR vs. IRR
| Aspect | IRR | MIRR |
|---|---|---|
| Reinvestment assumption | At the IRR rate (often too high) | At your specified reinvestment rate |
| Multiple IRR problem | Can have multiple solutions | Always single solution |
| Typical result | Higher | Lower, more realistic |
| Use case | Quick screening | More rigorous capital budgeting |
When to use MIRR
Use MIRR when: - Project cash flows alternate positive and negative (multiple IRR problem) - The reinvestment rate is significantly different from IRR - You need to compare projects with different lifespans - Lenders or sophisticated investors require it
Typical MIRR thresholds: 15%+ for startup/VC investments, 12–18% for PE, 8–12% for real estate, 6–10% for infrastructure.