Interactive Concept: Modified Internal Rate of Return (MIRR)

MIRR exists because IRR assumes cash flows are reinvested at the IRR itself. MIRR uses your WACC, a return you could actually achieve.

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.

11.6%
CASH FLOW TIMELINE AND FORWARD COMPOUNDING DIAGRAM
Every cash flow is compounded forward to the terminal date at your WACC. Earlier cash flows have longer to grow.
Each arrow flows right to that date, multiplying by (1 + WACC) once per year it passes.
x
Initial Investment (CF₀)
Value at year n
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 cash flow is multiplied by its growth factor to reach the terminal date. The sum of those terminal values is what the initial investment must grow to, and MIRR is the rate that gets it there.

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

* Growth factor = (1 + r)n-t, where r is your WACC and n-t is the number of compounding periods left for that cash flow.