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abiola says

Hi mr John.

Can you please explain why the higher the required return the lower the market price?

Thanks.

olakade says

Please, I’m confused about the inflow and outflow in the cost of debt calculation. You put the MV as an outflow while the interest paid and the repayment value as inflow. While this please because if the current MV is inflow and the interest paid and the redemption paid are outflows, the result for IRR will be different. I hope you get what I mean. e.g df@5% will give a negative NPV of 19.42 and df@10% will give a positive NPV of 0.77. Then, IRR = 5.19% totally different from 9.81%. Please, explain which one is correct because I think 5.19% is logical looking from company’s view. Thanks.

John Moffat says

It does not matter which way round the flows are. If the flows are reversed then the sign of the NPV will be the opposite. However, we are after a NPV of zero – minus zero and plus zero are the same!!

I have no idea how you arrived at 5.19% – just looking at the figures should make you realise that 5.19% is impossible. Since the NPV at 10% is almost zero, the IRR must be very close to 10%!!

olakade says

Thanks. It makes sense to me now. Besides, I should have thought of that you last sentence. God bless.