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MIRR Calculator with WACC Online

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The MIRR calculator is a sophisticated tool designed to offer a more realistic picture of an investment's profitability by incorporating the cost of capital through the WACC. Unlike the traditional Internal Rate of Return (IRR), which can sometimes provide misleading results due to its assumption of reinvesting the cash flows at the IRR itself, MIRR uses a more conservative approach. It assumes that positive cash flows are reinvested at the WACC, offering a more accurate reflection of an investment's potential.

Formula of MIRR Calculator with WACC

To calculate MIRR considering the Weighted Average Cost of Capital, the formula is as follows:

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MIRR = (FV / PV)^(1/n) * (1 + WACC)^(n) - 1

Where:

  • MIRR is the Modified Internal Rate of Return.
  • FV is the future value of the investment's positive cash flows, reinvested at the WACC.
  • PV is the present value of the initial investment's negative cash flows, discounted at the financing cost or WACC.
  • n is the number of periods.
  • WACC is the Weighted Average Cost of Capital. It represents the average rate of return a company is expecte to pay its securities holders to finance its assets.

This formula stands as a testament to blending traditional investment appraisal with contemporary financial insights, offering a more grounded and realistic evaluation of investment projects.

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General Terms Table

To aid understanding and facilitate practical applications, below is a table of general terms commonly associate with the MIRR calculator and WACC:

TermDefinition
MIRRModified Internal Rate of Return, a measure of the investment's profitability considering the cost of capital.
WACCWeighted Average Cost of Capital, the average rate of return a company expects to compensate its investors.
FVFuture Value, the value of an investment at a future date, considering positive cash flows reinvested at the WACC.
PVPresent Value, the current value of future cash flows discounted at the WACC.
nNumber of periods, typically years, over which the investment is evaluated.

Example of MIRR Calculator with WACC

To illustrate, consider an investment with an initial outlay of $100,000, expected annual cash flows of $30,000 for 5 years, and a WACC of 10%. By applying the MIRR formula, one can determine the investment's modified internal rate of return, factoring in the cost of capital and providing a more reliable metric for decision-making.

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Most Common FAQs

What is the difference between MIRR and IRR?

MIRR provides a more realistic estimate of an investment's profitability by assuming reinvestment at the WACC, unlike IRR, which assumes reinvestment at the IRR itself.

Why is WACC use in calculating MIRR?

WACC is use to reflect the cost of capital, offering a more accurate measure of an investment's returns by considering the financing costs.

How does MIRR benefit investors?

MIRR helps investors make more informed decisions by providing a conservative estimate of an investment's profitability, taking into account the cost of capital and reinvestment rates.

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