HP 12c User Manual page 149

This Modified Internal Rate of Return procedure (MIRR) is one of several IRR
alternatives which avoids the drawbacks of the traditional IRR technique. The
procedure eliminates the sign change problem and the reinvestment (or
discounting) assumption by utilizing user stipulated reinvestment and borrowing
rates.
Negative cash flows are discounted at a safe rate that reflects the return on an
investment in a liquid account. The figure generally used is a short-term security
(T-Bill) or bank passbook rate.
Positive cash flows are reinvested at a reinvestment rate which reflects the return on
an investment of comparable risk. An average return rate on recent market
investments might be used.
The steps in the procedure are:
1. Calculate the future value of the positive cash flows (NFV) at the reinvestment
rate.
2. Calculate the present value of the negative cash flows (NPV) at the safe rate.
3. Knowing n, PV, and FV, solve for i.
Example: An investor has the following unconventional investment opportunity.
The cash flows are:
Calculate the MIRR using a safe rate of 6% and a reinvestment (risk) rate of 10%.
Keystrokes
fCLEARH
0gJ
100000gK
5ga
0gK5ga
0gK9ga
200000gK
File name: hp 12c_user's guide_English_HDPMBF12E44
Printered Date: 2005/7/29
Section 13: Investment Analysis
Group # of Months
0 1
1 5
2 5
3 9
4 1
Display
0.00
0.00
5.00
5.00
9.00
200,000.00
Page: 149 of 209
Dimension: 14.8 cm x 21 cm
Cash Flow ($)
–180,000
100,000
–100,000
0
200,000
First cash flow.
Second through sixth cash flows.
Next five cash flows.
Next nine cash flows.
Last cash flow.
149