Apple iWork '09 - Manual (Page 128)

MIRR
The MIRR function returns the modified internal rate of return for an investment that
is based on a series of potentially irregular cash flows (payments that do not need to
be a constant amount) that occur at regular time intervals. The rate earned on positive
cash flows and the rate paid to finance negative cash flows can differ.
MIRR(flows-range, finance-rate, reinvest-rate)
 flows-range: A collection that contains the cash flow values. flows-range is a
collection containing number values. Income (a cash inflow) is specified as a positive
number, and an expenditure (a cash outflow) is specified as a negative number.
There must be at least one positive and one negative value included within the
collection. Cash flows must be specified in chronological order and equally spaced
in time (for example, each month). If a period does not have a cash flow, use 0 for
that period.
 finance-rate: Interest rate paid on negative cash flows (outflows). finance-rate
is a number value and is either entered as a decimal (for example, 0.08) or with
a percent sign (for example, 8%) and represents the rate at which the amounts
invested (negative cash flows) can be financed. For example, a company’s cost of
capital might be used.
 reinvest-rate: Rate at which positive cash flows (inflows) can be reinvested. reinvest-
rate is a number value and is either entered as a decimal (for example, 0.08) or with
a percent sign (for example, 8%) and represents the rate at which the amounts
received (positive cash flows) can be reinvested. For example, a company’s short-
term investment rate might be used.
Usage Notes
Cash flows must be equally spaced in time. If there is no cash flow in a particular Â
time period, use 0.
Example 1
Assume you are presented with the opportunity to invest in a partnership. The initial investment
required is $50,000. Because the partnership is still developing its product, an additional $25,000 and
$10,000 must be invested at the end of the first and second years, respectively. In the third year the
partnership expects to be self-funding but not return any cash to investors. In the fourth and fifth years,
investors are projected to receive $10,000 and $30,000, respectively. At the end of the sixth year, the
company expects to sell and investors are projected to receive $100,000. Assume that you can currently
borrow money at 9.00% (finance-rate) and can earn 4.25% on short-term savings (reinvest-rate).
Using the IRR function, you can determine the expected rate of return on this investment. Based on
the assumptions given, the rate would be approximately 9.75%.
128 Chapter 6 Financial Functions