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Investing money can become quite complicated. For example, you might need to borrow the money you invest in some other project. You could also reinvest any proceeds from that project into another investment and get a gain on that money. If you need to calculate the internal rate of return for a series of mixed cash flows then you can use the MIRR function. The MRR function has arguments which are the interest rate on the initial loan, and the interest rate on any reinvested funds, and then also the cash flows themselves.
So in this worksheet I have the interest rate on the initial loan. So let's say that you have a construction project and you borrow this money for use in that project. And then let's say that you are getting money back on your investment and the interest rate on the reinvested funds is 5%. So in other words, you're borrowing $150,000 and then you're paying 9% per year on that and then all the moneys you get back, which are in cells B7 to B13, you're receiving interest on.
So let's go ahead and create our formula in cell C16. Now type =mirr( and then we have the values, which are in cells B6 to B13. And note that the value in cell B6 is in parentheses. That's because it is a negative number because it's an outflow from your account. Money that you no longer have use of. So we have B6 to B13, then a comma, and then we have the finance rate, which is the interest rate on the loan that is in cell C2, and then we have the interest rate on reinvested funds, which is in cell C3.
Type a right parenthesis. Check to make sure everything looks right. It does. Then press the Tab key and we see that the internal rate of return on this investment is about 6.5%. With that information you can evaluate this investment against others such as government bonds and if you get a higher rate of return than you would on a guaranteed investment you should take the plunge.
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