How to Calculate the MARR

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Also known as the hurdle rate, the minimum acceptable rate of return, or MARR, is the minimum rate of return that a project manager will accept before starting a project, considering its risk. A project manager will to start a new project if the MARR exceeds the current return of other projects. The MARR is based on the present value of return on investment and a series of future payments, known as negative values, and income, referred to as positive values.

Things You'll Need

  • Microsoft Excel
  • Start the Excel spreadsheet program. Click "File" and then "New" to create a blank worksheet. Type seven row labels: "project value", "rate of interest for loans", "expected rate of inflation", "rate of inflation change", "loan default risk", "project risk" and "MARR" into cells A1, A2, A3, A4, A5, A6 and A7, respectively.

  • Fill in your rate values into the cells B1, B2, B3, B4, B5 and B6, corresponding to the appropriate values of the factors listed in column A.

  • Type "=SUM(B1:B5)" into cell B6 and press the "Enter" key to calculate MARR. Multiply project value by project risk by typing "B1*B6" into cell B7. Press the "Enter" key to determine whether the MARR exceeds the current return of your other projects.

Tips & Warnings

  • The formula for MARR is: MARR = project value + rate of interest for loans + expected rate of inflation + rate of inflation change + loan default risk + project risk.
  • The formula for current return is: current return = (the present value of cash inflows + the present value of cash outflows) / interest rate.

References

  • Photo Credit Cash flow image by Blue Moon from Fotolia.com
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