Modified Internal Rate

of Return (MIRR)
The discount rate at which the present value of
a project’s cost is equal to the present value of its
terminal value, where the terminal value is found as
the sum of the future values of the cash inflows,
compounded at the firm’s cost of capital.
You must analyze two projects, X and Y. Each
project costs $10,000, and the firm’s WACC is 12%.
The expected cash flows are as follows:

Project X Project Y
Year Cash Flows Year Cash Flows
0 (10,000) 0 (10,000)
1 6500 1 3500
2 3000 2 3500
3 3000 3 3500
4 1000 4 3500

Calculate each project’s MIRR.

Given:
WACC = 12%
n = 4 years
Project Cost = -10000

Solution:

Step 1: Calculate the Terminal Value (TV).

Formula: A = P(1+WACC)n

TVx = $6500(1.12)3 + 3000(1.12)2 + 3000(1.12)1 + 1000 = $17,255.23

TVy = $3500(1.12)3 + 3500(1.12)2 + 3500(1.12)1 + 3500 = $ 16,727.65
 Step 2: Calculate the MIRR.
𝑛 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑎𝑠ℎ 𝐼𝑛𝑓𝑙𝑜𝑤𝑠
Formula: MIRR = −1
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑎𝑠ℎ 𝑂𝑢𝑡𝑓𝑙𝑜𝑤𝑠

4 $17,255.23
MIRRx = -1
$10,000
= 14.61%

4 $16,727.65
MIRRy = -1
$10,000
= 13.73%
Mr. A is considering an investment of $ 250,000 in a startup.
The cost of capital of the investment is 13%. Following cash
flows are expected:

Year Cash Flows

0 ($250,000)
1 50,000
2 100,000
3 200,000

Calculate MIRR for the proposed investment.

Given:
WACC = 13%
n = 3 years
Project Cost = -250,000

Solution:
Step 1: Calculate the Terminal Value (TV)
Formula: A = P(1+WACC)n

Cash Duration Rate Working Terminal

Inflow Value
50000 2 years 13% (50000 × 1.132) $63,845
100000 1 year 13% (100000 × 1.13) 113,000
200000 0 year 13% 200,000
$376,845
 Step 2: Calculate the MIRR.
𝑛 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑎𝑠ℎ 𝐼𝑛𝑓𝑙𝑜𝑤𝑠
Formula: MIRR = −1
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑎𝑠ℎ 𝑂𝑢𝑡𝑓𝑙𝑜𝑤𝑠

$376,845
MIRR = 3 -1
$250,000
= 14.66%
The End…
Thank You!