# Clarify Microsoft's explanation of MIRR

I don't understand Microsoft's MIRR example. The second parameter is the finance_rate:

``````  Finance_rate Required. The interest rate you pay on the money used in the cash flows.
``````

The example then describes the first cash flow for -120,000 as a loan:

``````   Annual interest rate for the 120,000 loan
``````

The MIRR after the full term, 5 years, is 13%.

Why is it, if the finance rate is changed, the MIRR does not change? The finance rate only impacts the MIRR if additional investments (negative cash flows) are made.

I'm not suggesting that the example is wrong. I just can't wrap my head around the idea that when there is a single investment cash flow and the investment rate changes, the MIRR doesn't change. How is this possible?

You can copy and paste the example to Excel as described and change the value in A8 to test this.

Edit, August 3rd: When I ask "how is this possible", I don't mean how can the equation produce this outcome. What I mean is, how would one explain it to a Finance 101 class that the finance rate can change and the MIRR does not change? That fact just is not intuitive and I think, needs an explanation.

Here is another non-intuitive result. Enter four cash flows - two negative followed by two positive so that the net cash flow is positive (i.e. a profit). Calculate the MIRR using a finance rate of 10% and refinance rate of 5%. Note the result. Lower the finance rate, say to 6%. The new MIRR will also be lower.

It does not seem logical that when the cost of financing goes down and the refinance rate does not change, that the MIRR would decrease. How can a cost go down, and all other variables remain the same and the return also go down?