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For Question no2. The answers at the back has taken discounting at 20% so i have 2 points to compare with but then i don’t know why the workings to get the IRR were taken as explained at the back. (12%+8%x33830/33830+11790) since in example 2 of the chapter you explained that IRR = 10% + (6660/8820 *5%) Any explanation about this will help me understand it better pls.
For Question no 3 my workings gave me the answer of 3.6years and answers at the back says it should be C ‘within 3 years’.
Question no.4 my workings gave me the answer of 3.34 years answers at the back says within 4 years.
Are my above answers correct and how do i decide if its within 3yrs of within 4yrs?
Thanks
Question 2:
To calculate the IRR, you can use any two guesses at interest rates, as I explain in the lecture. (I assume you have watched the lecture?)
Since question 1 asked for the NPV at 12%, then it is sensible to use that as one of the guesses. I chose to use 20% as the second guess.
The workings are then exactly the same as the workings in the lecture for example 2 – we apportion linearly between the two NPV’s.
Question 3:
We are after the number of years it takes to get back the 270,000.
After 2 years we have had back a total of 230,000.
After 3 years we have had back a total of 330,000.So, to get back 270,000 must be somewhere between 2 and 3 years. i.e. less than 3 years or within 3 years. (Within 3 years means less than 3 years).
(I do not understand how you got 3.6)
Question 4:
This should not make sense if you have read my answer to question 3 above 🙂
3.34 years is less than 4 years, so it is within 4 years.
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