Investment appraisal part a, Net Present Value, Internal Rate of Return

• says

You use the formula that is given at the top of the formula sheet (depending on whether you want the normal discount factor, or the annuity discount factor).
I go through this in the previous lecture.

1. says

Thank you for help.
One question though..in the test post the chapter I’m not understanding why 8% was used to arrive at the IRR of 18%. I did get 18% but this was done the long way.

• says

I don’t know what you mean by ‘the long way’- there is only one way of doing it, making two ‘guesses’ and then approximating between them.

Since we had already been asked to calculate the NPV at 12%, we had one value. You could try any rate of interest for the second value – my answer tried 20%.
(8% is the difference between 20% and 12%).

2. says

This was very helpful thank u but can u work this question for me plz
An investment has the following inflows and outflows

Time Cash flow per annum
0 (20,000)
1-4 3,000
5-8 7,000
10 (10,000)

What is the net present value of the investment at a discount rate of 8% ?