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Hi Everyone
Hope we are all geared up and studying hard for the summer 🙂
I am working through the opentuition lecture notes and I am stuck on an IRR calculation question, chapter 7 example 10
you have to calculate cost of debt. the example uses discount rates of 5% and 10%. and gives an answer of 7.51%
But when I do the calculation using rates of 5% and 15% i get an answer of 7.88%
If I try again using 4% and 13% I get an answer of 7.9%
It is because the relationship is not linear.
Different guesses will give different answers, and that does not matter – you will still get full marks. (If you are more than 1% different, then you have probably made a mistake, but otherwise no problem 🙂 )
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