First of all thank you for all the great lessons here on opentuition. I think we all really appreciate your effort.

I would have just one question. Since they call it “internal return”. Would it be sufficient for the exam to calculate the IRR by dividing the cash outflows with the sum of cash inflows to the power of 1/n (periods)?

We are simply looking at the difference between the two NPV’s.

So if one of the is +10 and the other is -5 then the difference is 15
If one of them is +10 and the other is +5 then the difference is 5
If one of them is -5 and the other is -15 then the difference is 10.

I think my question is like this one, so I decided to post under this question.
10% – This is 50 000 NPV
15% – This is -10 000 NPV

If we start from bottom to top// (15-10)= 5% increase in interest which corresponds to decrease in NPV of 60 000 (-10 000 – 50 000), so +5% and -60 000.
In this case we have -5/6*5. So it turns out IRR lower than 10% which is wrong. I am kind of confused ……Can you explain once more this part with signs.

Hi John, thank you for this lecture. I got a bit stuck working through my text book and couldn’t see how to get the answer (no explanation in text). I see it now – very simple 🙂

Zoran says

Dear Sir

First of all thank you for all the great lessons here on opentuition. I think we all really appreciate your effort.

I would have just one question. Since they call it “internal return”. Would it be sufficient for the exam to calculate the IRR by dividing the cash outflows with the sum of cash inflows to the power of 1/n (periods)?

Kind regards

Zoran says

Sorry, the other way round…cash income / cash outflow

Zoran says

Please ignore; just noted that I had a random luckshot by making a typo.

Moloantoa says

hi John,

is there any margin to set between the two guessed rates? i.e say 5 as a difference according to the illustration above?

John Moffat says

No – there is no special margin 🙂

Bhagat says

Mr. John Moffat, your lectures are steady as always. I feel blessed learning under your guidance 😀

John Moffat says

Thank you 🙂

clss says

Hi

Is the video working properly? I cannot get past 3.13 minutes, at 3.13 it then skips back to 3.08,

John Moffat says

The video is working fine. Go to the support page (the link is above) and you will find help there.

aliimranacca007 says

if 1 NPV IS + AND 1 – we add both …if both + we subtract ..if both negtive then we also subtract ?

John Moffat says

Don’t simply learn a rule – you must make sure you understand what is happening and then you don’t need a rule.

aliimranacca007 says

according to rule +,-= – but in Q you make add both , +,+= + , -,- = +

John Moffat says

We are simply looking at the difference between the two NPV’s.

So if one of the is +10 and the other is -5 then the difference is 15

If one of them is +10 and the other is +5 then the difference is 5

If one of them is -5 and the other is -15 then the difference is 10.

Lilit says

I think my question is like this one, so I decided to post under this question.

10% – This is 50 000 NPV

15% – This is -10 000 NPV

If we start from bottom to top// (15-10)= 5% increase in interest which corresponds to decrease in NPV of 60 000 (-10 000 – 50 000), so +5% and -60 000.

In this case we have -5/6*5. So it turns out IRR lower than 10% which is wrong. I am kind of confused ……Can you explain once more this part with signs.

John Moffat says

For a difference in NPV of 60,000, the interest rate changed by 5%.

If you start from the 10% guess, then we need the NPV to change by 50,000.

So it must be higher than 10% by 50/60 x 5%, which is 10% + 4.17% = 14.17%

awesome wajid says

John this lecture isn’t opening, maybe file has corrupted!! All other lectures r working fine, Sir

opentuition_team says

this lecture works OK too, reload the page.. clear cache if needed..

fahim231 says

This is by far the best way to calculate the IRR. Thanks John that was great.

skelf says

Hi John, thank you for this lecture. I got a bit stuck working through my text book and couldn’t see how to get the answer (no explanation in text). I see it now – very simple 🙂

John Moffat says

You are welcome – I am pleased that it is making sense 🙂

hope says

Nice lecture, the NPV and IRR is making sense to me now. Thanks alot John.