FINEDGE LEARNING

Interactive Concept: Modified Internal Rate of Return (MIRR)

Unlike IRR, MIRR uses your WACC as the reinvestment rate for all future cash flows. Each cash flow is compounded forward to the terminal date at the WACC, and MIRR is the single rate that grows your initial investment to that terminal value over n years. Change the WACC to see how the reinvestment assumption reshapes the result.

Discount Rate (WACC)

This rate compounds every future cash flow forward to the terminal date. Raising the WACC increases each terminal value and therefore raises the MIRR.

11.0%
CASH FLOW TIMELINE AND FORWARD COMPOUNDING DIAGRAM
Each arrow flows right to the terminal date. Earlier cash flows travel further and compound more. The last year column shows the terminal value each cash flow reaches at your WACC.
x
Initial Investment (CF₀)
The upfront outflow at time zero. Always treated as negative.
Initial Investment
--
Upfront outflow at time zero
Periods (n)
--
Years to terminal date
Sum of Terminal Values
--
All cash flows compounded to year n
MIRR
--
Modified Internal Rate of Return

Terminal Value Breakdown

Each row shows a future cash flow being compounded forward to the terminal date at the WACC. The growth factor is (1 + WACC)^(n-t), where n-t is the number of compounding periods remaining for that cash flow. The sum of terminal values is then compared to the initial investment to solve for MIRR.

Year (t) Cash Flow Compounding Periods (n-t) WACC Growth Factor Terminal Value