What is MIRR function in Excel?
MIRR function is one of the Financial functions in Microsoft Excel that returns the modified internal rate of return for a series of periodic cash flows. MIRR considers both the cost of the investment and the interest received on reinvestment of cash.
Syntax of MIRR function
MIRR(values, finance_rate, reinvest_rate)
The MIRR function syntax has the following arguments:
- Values: An array or a reference to cells that contain numbers. These numbers represent a series of payments (negative values) and income (positive values) occurring at regular periods.
- Values must contain at least one positive value and one negative value to calculate the modified internal rate of return. Otherwise, MIRR returns the #DIV/0! error value.
- If an array or reference argument contains text, logical values, or empty cells, those values are ignored; however, cells with the value zero are included.
- Finance_rate: The interest rate you pay on the money used in the cash flows.
- Reinvest_rate: The interest rate you receive on the cash flows as you reinvest them.
MIRR formula explanation
- MIRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want and with the correct signs (positive values for cash received, negative values for cash paid).
- If n is the number of cash flows in values, frate is the finance_rate, and rrate is the reinvest_rate, then the formula for MIRR is:
Example of MIRR function
Steps to follow:
1. Open a new Excel worksheet.
2. Copy data in the following table below and paste it in cell A1
Note: For formulas to show results, select them, press F2 key on your keyboard and then press Enter.
You can adjust the column widths to see all the data, if need be.
|Return first year
|Return second year
|Return third year
|Return fourth year
|Return fifth year
|Annual interest rate for the 120,000 loan
|Annual interest rate for the reinvested profits
|=MIRR(A2:A7, A8, A9)
|Investment’s modified rate of return after five years
|=MIRR(A2:A5, A8, A9)
|Modified rate of return after three years
|=MIRR(A2:A7, A8, 14%)
|Five-year modified rate of return based on a reinvest_rate of 14 percent