Modified Internal Rate of Return (MIRR)

Modified internal rate of return is a version of IRR that assumes interim cash flows are reinvested at a rate you choose, rather than at the IRR itself. It turns a year of cash on cash return into a multi-year answer while keeping the reinvestment assumption realistic.

Standard IRR quietly assumes each year's cash flow earns the IRR until the end of the hold. If a deal shows a 14% IRR but your spare cash actually sits at 4%, MIRR at a 4% reinvestment rate will come in lower and closer to what you would really earn.

Cash on cash return is the year one input to that process. The annual cash flows, the sale proceeds and the original $150,000 go into MIRR together. Use cash on cash to screen deals and MIRR or IRR to decide between the few you would actually buy.

Further reading: Modified Internal Rate of Return (MIRR) on Wikipedia.