Calculate Mirr Using Ba Ii Plus

What is MIRR (Modified Internal Rate of Return)?

Modified Internal Rate of Return (MIRR) is a financial metric used to evaluate the attractiveness of an investment or project. While many professionals use the standard Internal Rate of Return (IRR), it has a significant flaw: it assumes that interim cash flows are reinvested at the IRR itself, which is often unrealistically high. When you calculate mirr using ba ii plus, you account for a separate reinvestment rate, making it a much more accurate reflection of profitability and cost.

Financial analysts and corporate managers use MIRR to rank projects of different sizes and durations. It is particularly useful for those using the TI BA II Plus because the calculator’s standard IRR function doesn’t directly compute MIRR, requiring a specific workaround method involving the TVM (Time Value of Money) keys.

Calculate MIRR Using BA II Plus: Formula and Mathematical Explanation

The MIRR formula considers the future value of positive cash flows (reinvested at the reinvestment rate) and the present value of negative cash flows (discounted at the financing rate).

The Formula:

MIRR = [ (FV of Positive Cash Flows / |PV of Negative Cash Flows|) ^ (1/n) ] – 1

Variable	Meaning	Unit	Typical Range
FV (Inflows)	Terminal value of all positive cash flows reinvested.	Currency ($)	Total Inflows
PV (Outflows)	Present value of all costs/negative flows.	Currency ($)	Initial Outlay
n	The total number of periods (years/months).	Periods	1 – 30+
Reinvestment Rate	The rate earned on cash generated by the project.	Percentage (%)	5% – 15%

Practical Examples (Real-World Use Cases)

Example 1: Expanding a Manufacturing Line

A company invests $50,000 in a new line. The cash flows for years 1-3 are $20,000, $25,000, and $30,000. The cost of capital (financing) is 8%, and the reinvestment rate is 10%. To calculate mirr using ba ii plus, we first find the FV of inflows at Year 3 ($85,250) and divide by the PV of costs ($50,000). The resulting MIRR is 19.45%.

Example 2: Software Development Project

An initial cost of $10,000 leads to inflows of $3,000, $4,000, and $5,000 over 3 years. With a 7% reinvestment rate, the terminal value is $12,704.70. Dividing by the initial $10,000 and taking the cube root gives a MIRR of 8.31%. This shows a more conservative and realistic return than the standard IRR.

How to Use This Calculate MIRR Using BA II Plus Tool

Enter Initial Outlay: Input the amount you are spending at Year 0.
Input Cash Flows: List your annual returns separated by commas (e.g., 5000, 6000).
Set Rates: Enter the Financing Rate (what you pay for capital) and the Reinvestment Rate (what you earn on cash).
Review Results: The calculator updates in real-time, showing the MIRR and the Terminal Value.
BA II Plus Steps: If using the physical device, follow the steps below to verify your result.

How to Manually Calculate MIRR on the BA II Plus

Since there is no “MIRR” button, follow these steps:

Step 1: Use the CF key to enter all inflows, but set CF0 to 0.
Step 2: Press NPV, enter your Reinvestment Rate as I, and solve for NPV.
Step 3: Convert this NPV to Future Value: Press PV = [Result], N = [Years], I/Y = [Reinvestment Rate], and Solve for FV. This is your Terminal Value.
Step 4: Use TVM keys: PV = -[Initial Cost], FV = [Terminal Value], N = [Years], and Solve for I/Y. The result is your MIRR.

Key Factors That Affect MIRR Results

Reinvestment Rate Assumptions: MIRR is highly sensitive to what you assume you will earn on your cash flows. Higher rates increase MIRR.
Financing Costs: If negative cash flows occur later in the project, the cost of financing those flows reduces the MIRR.
Project Duration: Longer projects have a compounding effect on the terminal value of inflows.
Cash Flow Timing: Early cash flows are worth more because they have more time to be reinvested.
Initial Investment Size: A larger upfront cost requires much higher future cash flows to achieve a positive MIRR.
Risk Adjustments: MIRR allows you to use a risk-adjusted rate for reinvestment, unlike IRR.

Frequently Asked Questions (FAQ)

Why should I calculate mirr using ba ii plus instead of IRR?

MIRR provides a more realistic return because it doesn’t assume you can reinvest your profits at the same high rate the project earns. It uses a specific, conservative reinvestment rate.

Can MIRR be negative?

Yes, if the total future value of inflows is less than the present value of the costs, the MIRR will be negative, indicating a loss.

Is there a shortcut for MIRR on the BA II Plus Professional?

No, even the “Professional” model requires the TVM workaround or the NPV-to-FV calculation method mentioned above.

What is a good MIRR?

A “good” MIRR is any value higher than your company’s Weighted Average Cost of Capital (WACC).

What if I have negative cash flows in Year 2?

You must discount that negative flow back to Year 0 using the financing rate and add it to your Initial Outlay.

Does MIRR solve the multiple IRR problem?

Yes, MIRR always yields a single, unique solution, even if cash flows change signs multiple times.

How does inflation affect MIRR?

Inflation generally lowers the real value of future cash flows. It’s best to use nominal rates that account for inflation in your reinvestment assumptions.

Can I use MIRR for personal finance?

Absolutely. It’s useful for evaluating rental properties or business ventures where you reinvest the rental income into a savings account.

Related Tools and Internal Resources

NPV Calculator: Calculate the Net Present Value of your projects easily.
IRR vs MIRR Guide: A deep dive into why MIRR is often the superior metric.
TVM Calculator: Master the Time Value of Money principles.
Capital Budgeting Tools: Explore various methods for evaluating corporate investments.
WACC Calculator: Determine your company’s Weighted Average Cost of Capital.
Cash Flow Analysis: Tools for projecting future business liquidity.

Calculate MIRR Using BA II Plus

Visualizing Capital Growth (PV vs FV)