In Microsoft Excel, the **MIRR **function estimates the likely profitability of an investment or project. In this article, youâ€™ll learn how to use **MIRR** function in Excel and how it differs from the **IRR function**.

The above screenshot is an overview of the article which represents the application of the **MIRR** function in Excel. Granted this, in the following sections, youâ€™ll learn more about the dataset as well as how to use the function.

## Introduction to MIRR Function

In a nutshell, **MIRR** (*Modified Internal Rate of Return*) considers the reinvestment of the net present value (calculated with **the NPV function**) of the capital inflows at a rate equal to the firm’s cost of capital.

Besides, **MIRR** gives a more realistic estimation of the profitability of an investment compared to the internal rate of return.

**Function Objective:**

**The MIRR function considers both the finance and reinvest rates to calculate the modified internal rate of return.**

**Syntax:**

**=MIRR(values, finance_rate, reinvest_rate)**

**Argument Explanation:**

Argument | Required/Optional | Explanation |
---|---|---|

values | Required | An array consisting of the yearly cash flows |

finance_rate | Required | The discount rate as a percentage |

reinvest_rate | Required | The rate of interest (as a percentage) on the reinvested yearly cash flowsÂ |

**Return Parameter:**

**The Modified Internal Rate of Return while taking into account the discount rate and reinvestment rate.**

## How to Use MIRR Function in Excel: 3 Examples

Now, letâ€™s consider the **Yearly Cash Flow of Project Alpha** dataset shown in the **B4:C15** cells. Here, the dataset shows the **Year **starting with **0** (*Initial investment*), the yearly **Cash Flows**, the **Discount Rate** of **10%**, and the **Reinvest Rate** of **7.5%**.

Here, we have used ** Microsoft Excel 365** version, you may use any other version according to your convenience.

### 1. Calculating MIRR of an Investment

In the first place, let us start with a simple example of computing the profitability of an investment using the **MIRR** function. So, letâ€™s see it in action.

📌 ** Steps**:

- First and foremost, go to the
**F7**cell and insert the formula given below.

`=MIRR(C5:C15,F4,F5)`

In this formula, the **C5:C15** range of cells refers to the *Cash Flows, *theÂ **F4** cell points to the *Discount Rate*, and the **F5** cell indicates the *Reinvest Rate*.

- Next, press the
**ENTER**key and the result should look like the image given below.

Thatâ€™s it youâ€™ve calculated the *Modified Internal Rate of Return* of the project. Itâ€™s that simple!

### 2. Comparing Two Investments with MIRR Function

Assuming **Yearly Cash Flow of Projects Alpha and Beta** dataset shown in the **B4:D15 **cells. Here, we want to compare the *Modified Internal Rate of Return* of the two projects to determine which is more profitable. Now, we the yearly **Cash Flows** for both **Projects Alpha and Beta**, moreover, the **Discount** and **Reinvest Rates** are **10%** and **7.5%** respectively.

📌 ** Steps**:

- At the very beginning, move to the
**G7**cell and enter the expression given below.

`=MIRR(C5:C15,G4,G5)`

In this expression, the **C5:C15** range of cells refers to the *Cash Flows*,Â while the **G4** and **G5** cells represent the *Discount Rate and Reinvest Rate*.

- Now, this returns the
*Modified Internal Rate of Return*of*Project Alpha*, in this case, it is**11.18%**. - Likewise, navigate to the
**G8**cell and calculate the*Modified Internal Rate of Return*of*Project Beta*which is**9.69%**.

Eventually, the results should look like the picture shown below, and since the **MIRR **of *Project Alpha* is greater than *Beta,* so it is more profitable.

### 3. Applying VBA Code

You can also use **VBA Code** to obtain the *Modified Internal Rate of Return *of a project, it’s simple & easy, just follow along.

📌 ** Steps**:

- First, navigate to the
**Developer**tab >> click the**Visual Basic**button.

This opens the **Visual Basic Editor** in a new window.

- Second, go to the
**Insert**tab >> select**Module**.

For your ease of reference, you can copy the code from here and paste it into the window as shown below.

```
Sub Calculate_MIRR()
Dim M_IRR As Double
Static Cash_flows(11) As Double
Cash_flows(0) = -50000
Cash_flows(1) = 5000
Cash_flows(2) = 8500
Cash_flows(3) = 8000
Cash_flows(4) = 9000
Cash_flows(5) = 10000
Cash_flows(6) = 9500
Cash_flows(7) = 11000
Cash_flows(9) = 13500
Cash_flows(10) = 15000
Cash_flows(11) = 20000
M_IRR = MIRR(Cash_flows(), 0.1, 0.075)
M_IRR_pct = Format(M_IRR, "0%")
MsgBox "MIRR = " & M_IRR_pct
End Sub
```

**⚡**** Code Breakdown:**

Now, I will explain the **VBA** code used to calculate **MIRR **whichÂ code is divided into 3 steps.

- In the first portion, the sub-routine is given a name, here it is
**Calculate_MIRR()**. - Next, define the variables
**M_IRR**, and**Cash_Flows**and assign the data type**Double**.

- In the second potion, enter all the Cash flows manually.
- In the third portion, use the
**MIRR function**to compute the value and format it as a percentage using the**Format function**. - Finally, display the results in the
**MsgBox function**.

- Third, close the
**VBA**window >> click the**Macros**button.

This opens the **Macros** dialog box.

- Following this, select the
**Calculate_MIRR**Macro >> hit the**Run**button.

Consequently, the results should look like the screenshot given below.

## Comparing MIRR and IRR Functions

What if you want to compare the **MIRR **and **IRR **for the same project? In the following section, we’ll answer this exact question therefore let us see the process in the steps below.

📌 ** Steps**:

- Initially, jump to the
**F7**cell and type in the formula below.

`=MIRR(C5:C15,F4,F5)`

Here, the **C5:C15** range of cells refers to the *Cash Flows*,Â the **F4** cell points to the *Discount Rate*, and the **F5** cell indicates the *Reinvest Rate*.

- From this point, proceed to the
**F8**and compute the**IRR**using the expression given below.

`=IRR(C5:C15)`

Lastly, we can see that the **IRR **of the project is greater than the **MIRR** which is an overly optimistic estimation of the profitability.

## Shortcomings of MIRR Function

For one thing, experts suggest that because a project’s earnings are not always fully reinvested, so the **MIRR** function generates a less predictable rate of return. Nevertheless, by changing the reinvest rate, you can compensate for the partial investments.

## Things to Remember

In this case, a few issues you may encounter when using the **MIRR** function in Excel.

- First, a
**#DIV/0! error**results if the values don’t have at least one positive number (referring to the cashflows) and one negative number (indicating the initial investment). - Second, the
**#VALUE! error**occurs when one of the arguments, finance rate or reinvest rate, is not a numeric value. - Third, the
**MIRR**function uses the order of values to determine the order of cash flows under the assumption that all cash flows occur at regular intervals and at the end of each year.

## Practice Section

Here, we have provided a** Practice** section on the right side of each sheet so you can practice yourself. Please make sure to do it by yourself.

**Download Practice Workbook**

You can download the practice workbook from the link below.

## Conclusion

To sum up, in this article, I have shown you 3 examples of how to use **MIRR** function in Excel. Now, I suggest you read the full article carefully and apply this knowledge in the practice workbook. which you can also download for free. I hope you find this article helpful and informative and if you have any further queries or recommendations, please feel free to comment here.

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Hi, thanks for the article,

If your net income cash flows are already diminished of the interests to be paid, should we put a value for the “finance rate”, or simply 0 to avoid double counting?

Thanks !

Laurene

Hi Laurene,

Thanks for staying with us. If the net income cash flows reduced, or 0 or negative, whatever it is. The value of the argument

finance ratedoesnâ€™t depend on it. You must give the rate as input which is paid by you for cash flows. When you select thepaymentandincomesat specified intervals as theValuesargument, thefinance rateas the rate paid by you for your income, and finally thereinvestment rate,the MIRR functionwill calculate the rate by automatically adjusting the values.