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ACCA F9 Discounted Cash Flow – Internal Rate of Return
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Hi Sir,
Just to clarify. For the point you mentioned about the Problems with IRR, you said if we invest $10,00 both at 2% and 10%, we surely choose to invest 10% because we have the higher interest rate for higher interest. However, I assume if we invest in the higher interest rate, it will result in lower PV, which we won’t choose?
hello john
am having issues with assuming the second rate for calculating IRR .
different rate brings different IRR
PLS HELP
But I explain this in my lectures!!!]]
The IRR is only ever an approximation because we assume linearity but the relationship is not linear.
Different guesses will give different answers (although if they are different by more than 1% you have almost certainly made a mistake).
This does not matter for the exam.
that is the fear .
they give you one rate and you assume the 2nd rate but most times my assumption doesn’t usually match the once in the study text hence my IRR becomes different. which means the answer is WRONG
Thank you for the explanation about the formula IRR. It’s very clear and easy to understand.
I always forget the formula before I view your lectures.
Thank you for your comment 🙂
thank you for the video. Is there a possibility of explaining how the working 10% + 6660/8820*5% was arrived to? was there a previous cross multiplication which i should have understood? is it a point of inflection and so a formula behind it? it will be difficult for me to just remember to do a calculation if i don’t understand the reasoning behind it. thank you
It is not a point of inflection, it is simply apportioning between the two rates of interest on the assumption that the relationship is linear. I go through this fairly quickly in the lecture because it is revision of Paper F2. Best is to watch the Paper F2 lectures on investment appraisal where I go through it more slowly.
thank you very much for your reply. i will go through it in F2. is it too vein of me to attempt F9 before completing F2?
No – only bits of F2 are re-examined in F9 🙂
oh great thank you very much
You are welcome 🙂
In a situation where I get two positive NPVs, rather than continually calculating NPV in order to get a negative (ultimately wasting precious time), if I subtract the NPVs from each other and carry on with the linear interpolation, will this be correct?
Also would the same logic apply where I have two negative NPVs?
Yes – you can use 2 positive or 2 negative NPV’s to get the IRR 🙂
hi Can this be explained with an example..Thanks
It is in the Paper F2 lectures (because this is revision of F2). If you understand the logic behind the linear apportionment in the F9 lectures, then the logic is exactly the same whatever NPV’s result from the two guesses – it does not need more examples here.
hey dear,
I hope you doing fine and thnx for great job, Here I would like to make request to check first lecture on DCF-NPV, (CHAPTER 7) , its misplaced again by DCF- IRR lecture. Please update DCF-NPV, I had old lecture before, Please check it, I appreciate to will consider it.
Its just because of you I am well progressing without any failure, I am very great full to you& opentution,
thank you again
have a good time
zac utman
Thanks – I will ask admin to check.
please reload the page with lectures,. it should be OK now