IRR vs MIRR: Difference, Formula & Worked Example
By Devon Coombs, CPA, MBA · Assistant Teaching Professor of Finance, Santa Clara University · Reviewed October 2026
From the author: Devon Coombs, CPA, MBA teaches finance at Santa Clara University and works with corporate teams on practical AI.
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IRR is a break-even discount rate for the original cash flows. MIRR is a modified return calculated by discounting outflows and compounding inflows at stated rates. Use MIRR when you want those financing and reinvestment assumptions to be explicit. Neither measure replaces NPV, risk analysis, or a cash-flow forecast.
| IRR | MIRR | |
|---|---|---|
| Calculation | Solve for the rate that makes NPV zero | Annualize terminal inflows relative to the present value of outflows |
| Reinvestment | No separate reinvestment input is needed to solve the IRR equation | Positive cash flows are compounded at an explicit reinvestment rate |
| Additional outflows | Included on their original dates | Discounted using the stated finance rate |
| Multiple sign changes | May produce multiple solutions or no usable IRR | Produces one result for valid periodic inputs with both positive and negative flows and rates above −100% |
| What a quoted return means | A rate for the original investment cash flows | A rate under the selected financing and terminal-wealth assumptions |
When IRR is the right tool
Use IRR when you need a conventional return measure for a specified cash-flow stream. With an initial outflow followed by inflows, its interpretation is usually straightforward. For irregular dates, use a date-aware method such as XIRR rather than treating every payment as equally spaced.
When MIRR is the right tool
Use MIRR to explore a stated reinvestment policy or analyze cash flows that create an ambiguous IRR. The general formula is (future value of positive flows ÷ present value of negative flows)^(1 ÷ number of periods) − 1. MIRR is only as useful as its rates and timing assumptions; choosing a rate does not make it achievable.
The common mistake
A high IRR does not prove that distributed cash can keep earning that rate. But saying IRR mathematically requires actual reinvestment at the IRR is also misleading. Separate the return on the original cash-flow stream from the terminal wealth produced by reinvesting its distributions. MIRR can be lower or higher than IRR depending on the assumptions.
The same cash flows, two different questions
- Invest $100 today and receive $60 at the end of year 1 and $60 at the end of year 2. The IRR solving −100 + 60/(1+r) + 60/(1+r)² = 0 is about 13.07% per year.
- For MIRR, assume a 5% reinvestment rate and a 10% finance rate. The initial $100 needs no discounting; there are no later outflows. Terminal inflows = $60 × 1.05 + $60 = $123.
- MIRR = ($123 ÷ $100)^(1/2) − 1 = 10.91%. In Excel, with −100, 60, 60 in A1:A3, use =IRR(A1:A3) and =MIRR(A1:A3,10%,5%).
Changing the reinvestment input changes MIRR. It does not change the IRR of the original cash flows.
References & further reading
Work the numbers yourself
Both concepts are taught in depth, with practice questions, in the free Entrepreneurial Finance course.