Discounted Cash Flow – Internal Rate of Return – ACCA Financial Management (FM)
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Hello, can there be 0 IRR’s?
Yes! But unlikely. Suppose a project required an outflow at time 0, and then another outflow at time 1 (and then no further flows). There would be no IRR 🙂
Can I do 8820/5*100=176400 6660/176400=0.03775. Would that method be accepted?
No it wouldn’t. You either do as in the lecture or (more sensibly if in Section C of the exam) you use the IRR function in the spreadsheet provided.
Hi professor,
Does the NPV values affect the formula that you share? E.g. Is the negative figure always the denominator?
Thank you.
No to both 🙂
It is important to understand the logic behind the formula rather than just learn a formula (and in Section C questions you do not need to make two guesses anyway because you can use the IRR function in the spreadsheet that is provided),
Hello
when i divide 6660 by 8820 and then multiply by 5% it is giving me 0.0378 and not 3.78, kindly advise!!!!!!!!
0.0378 = 3.78%
One of the sample question asks “a graph showing NPV on Y axis and interest rate on X axis will have a negative slope” surely this is true – if interest rates increase doesnt NPV go down ?
Apologies, I have found the section where you explain this, now understand how this can happen.
No problem 🙂
Thanks for the presentation knowing another way of calculating irr is a plus
You are welcome 🙂
it was very helpful sir. to find the discounting factor in IRR, do we divide initial investmnet / cash flow or the other way round?
I don’t really understand what you are asking, because we do neither. We discount using two interest rates (and look up the discount factors in the tables) and then approximate between the NPV’s to get the IRR.
Hi Professor,
Thank you very much for your valuable lectures. These IRR calculations and NPV calculations can be done through the calculator. (BA 2 Plus) Is it okay to use the calculator method or is it mandatory to use the table method?
That calculator is not allowed in the exam – it displays letters as well as numbers and you are not allowed calculators that have letters in the display.
Anyway, appreciate that most of the questions in the exam are designed in a way to test that you understand what you are doing – not just that you can do simple calculations 🙂
Thank you John for this presentation. The approach regarding the IRR was put straight.
Thank you for your comment 🙂