Could you please explain why any two guesses would work for calculating the IRR? I guess that would be true if at least one gives NPV pretty close to zero or am I wrong?

John….please ignore my query because the notes actually have the correct figures, I was following the lectures and practicing examples without checking the answers at the back.

Ps: The answer to example 10 has the same figures as I got so panic over – phew!

Apologies but you might want to check the lecture – The Cost of Capital (part 3), example 10.

The annuity factor for 6 years at 5% Discount rate is 5.076 and not 4.917 which is annuity factor at 6%.

Thanks for teaching about the short cut to IRR formula. Instead of just blindly applying the quite ‘messy’ formula I really understand deeply how I arrive at the figures.

In lecture The Cost of Capital (part 3) – example 10, should the annuity for 5% would have been 5.076? In the lecture you have used 4.917 which is 6%, can you please review this?

Many thanks for the great lectures and sense of humour(::)!!.

In order to calculate an IRR (whether it is for project appraisal or for calculating a cost of debt) we need to guess at two interest rates (any two guesses) and then approximate between them.

If you are not familiar with calculating an IRR, then the F2 and F9 lectures may help you.

Hi sir.This one is regarding MACAULAY DURATION . in bpp text it says when yield decreases duration increases but in an example i did(opentuition notes.ch8.Example4) lowering the yield has now effect on the duration.Why is that ?

hi , I know this is a noob question at this level but why in example 10 when i use 10% and 15% to calculate IRR i get the different value in comparison to what you have used in the question. I recall this has something to do with using one possitive npv and one negative for IRR calculation.But please would u be kind enough to elaborate.Thanks

You can use any two guesses to calculate the IRR, but because the relationship is not linear then different guesses will give slightly different answers.
This is not a problem in the exam – you get full marks.

Ideally we would have one positive NPV and one negative, but even that is not essential .

The video is working fine – it must be a problem at your end.
If you go to the support page you should find the solution for your device.
The link is: http://opentuition.com/support/

In example 10 the an annuity for 6% was incorrectly used that is 4.917. It should be at 5% for 6yrs at 5.076 as the disc rate for 5% in 6 yrs was used. This is where IRR was being calculated for cost of Debt to the company. I know the concept remains the same and was just an error but for future reference i thought i should just mentioned it… the IRR was actually 7.5% not much of a difference any ways

Thanks – I will check the lecture tonight (and the answer at the back of the course notes) and if it is wrong, then I will have it corrected. (I cannot check at the moment because I am away from home).

Your welcome… But mistakes happen sometimes. I only mentioned it so for future reference. However, when i looked at the last lecture on Cost of capital, that is the lecture on EXAMPLE 10 only. The correct rate was used there. But i must say your lecture help me understand the Cost of Capital so well. Thanks a mil. You are doing a great Job. Thanks again.

in the example of 9, he calculated the Ke by using the market value post dividend. is there anything wrong? the formula shows that the market value of shares in it should be ex div.

mboyadzhieva says

Hello and many thanks for the great lectures!

Could you please explain why any two guesses would work for calculating the IRR? I guess that would be true if at least one gives NPV pretty close to zero or am I wrong?

Thank you

annette says

John….please ignore my query because the notes actually have the correct figures, I was following the lectures and practicing examples without checking the answers at the back.

Ps: The answer to example 10 has the same figures as I got so panic over – phew!

Apologies but you might want to check the lecture – The Cost of Capital (part 3), example 10.

Many thanks once again.

John Moffat says

You are correct – I do apologise. I have been meaning to correct the lecture but I keep forgetting 🙁

Thanks for reminding me 🙂

accastudentofoman says

A gentle reminder to correct the mistake.

The annuity factor for 6 years at 5% Discount rate is 5.076 and not 4.917 which is annuity factor at 6%.

Thanks for teaching about the short cut to IRR formula. Instead of just blindly applying the quite ‘messy’ formula I really understand deeply how I arrive at the figures.

accastudentofoman says

My apologies. The error IS rectified in a separate lecture: http://opentuition.com/acca/p4/cost-of-capital-example-10/

Please ignore my comment on the error and accept my gratefulness for the logical way of finding IRR.

John Moffat says

Thanks 🙂

annette says

Hi John,

In lecture The Cost of Capital (part 3) – example 10, should the annuity for 5% would have been 5.076? In the lecture you have used 4.917 which is 6%, can you please review this?

Many thanks for the great lectures and sense of humour(::)!!.

beatrice says

Hi thanks ive never come across such an elaborate lecturer.

sogan0 says

Hi

i dont get these gueses from 10% and 5% please explain

John Moffat says

Which bit don’t you get?

In order to calculate an IRR (whether it is for project appraisal or for calculating a cost of debt) we need to guess at two interest rates (any two guesses) and then approximate between them.

If you are not familiar with calculating an IRR, then the F2 and F9 lectures may help you.

sogan0 says

so can i stick to 5% and 10% on guesses

John Moffat says

Yes – no problem 🙂

Mathias says

I am unable to view the video, despite deleting the cookies. I also loaded the latest Adobe Flash player.

However I was able to view the video on another PC.

admin says

No idea why your pc fails to load lectures,, try another browser. Or contact your Internet provider?

ace91 says

Hi sir.This one is regarding MACAULAY DURATION . in bpp text it says when yield decreases duration increases but in an example i did(opentuition notes.ch8.Example4) lowering the yield has now effect on the duration.Why is that ?

ace91 says

hi , I know this is a noob question at this level but why in example 10 when i use 10% and 15% to calculate IRR i get the different value in comparison to what you have used in the question. I recall this has something to do with using one possitive npv and one negative for IRR calculation.But please would u be kind enough to elaborate.Thanks

John Moffat says

You can use any two guesses to calculate the IRR, but because the relationship is not linear then different guesses will give slightly different answers.

This is not a problem in the exam – you get full marks.

Ideally we would have one positive NPV and one negative, but even that is not essential .

vinitha says

Please help…..i keep on getting this message when i click play on the vedio “The page you tried to find does not exist, please choose below:”

John Moffat says

The video is working fine – it must be a problem at your end.

If you go to the support page you should find the solution for your device.

The link is: http://opentuition.com/support/

kellyldr says

In example 10 the an annuity for 6% was incorrectly used that is 4.917. It should be at 5% for 6yrs at 5.076 as the disc rate for 5% in 6 yrs was used. This is where IRR was being calculated for cost of Debt to the company. I know the concept remains the same and was just an error but for future reference i thought i should just mentioned it… the IRR was actually 7.5% not much of a difference any ways

John Moffat says

Thanks – I will check the lecture tonight (and the answer at the back of the course notes) and if it is wrong, then I will have it corrected. (I cannot check at the moment because I am away from home).

I do apologise if I have made a mistake.

kellyldr says

Your welcome… But mistakes happen sometimes. I only mentioned it so for future reference. However, when i looked at the last lecture on Cost of capital, that is the lecture on EXAMPLE 10 only. The correct rate was used there. But i must say your lecture help me understand the Cost of Capital so well. Thanks a mil. You are doing a great Job. Thanks again.

papiasu says

Thank you sir

moeedaftab@hotmail.com says

thank you sir John!

moeedaftab@hotmail.com says

I lik yor teachering styel

nickneouk says

Excellent lecture! Thank you

nyandoro says

I can’t play the videos on my iPad. Does anyone know why and how I can resolve this?

admin says

lectures do play on the ipad. maybe your internet is behind a firewall. contact your internet provider for check this for you

gellisk says

Its very useful to students, but videos are do not opened arising the some errors, please rectify

thank u

admin says

@gellisk, videos play fine

Your PC or your internet connection is the problem

lyford says

@admin, am not able to view video lectures it reads server not found

admin says

@lyford, you are behind a firewall, ask your internet provider for help

niffy99 says

Impressive revision,

utn9 says

Another great work by John with a negligible error. Thanks a lot sir.

walshan says

Were these errors noted and accepted by OT, and if so was the video corrected?

John Moffat says

@walshan, what errors?

1708116acca says

in the example of 9, he calculated the Ke by using the market value post dividend. is there anything wrong? the formula shows that the market value of shares in it should be ex div.

John Moffat says

@1708116acca, post dividend = ex div

mwachilale says

Good staff. The error noted on Annuity factor for 6years at 5%.

jarboshi says

yes, it is on example 10, but it only makes difference of 0.01% in the answer. I got 13.55% as WACC

p4nitemare says

yeap very good revision. a genuine mistake indeed.

rballiram says

the discount factor for the annuity at 6 years for 5% is 5.076.

in this answer where they they get 4.917?

ravisnayanar says

it’s just a genuine mistake. he took 6%, 6 years…