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Annuity factor with IRR

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Annuity factor with IRR

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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    Posts
  • April 8, 2018 at 9:53 pm #445695
    zhua
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    I am studying how to use annuity factor to calculate IRR, the steps are 1: calculate cumulative discount factor with is also referred to as Annuity Factor = initial investment / annual inflow.
    2: find the life of the project, n . 3: looking along the n year row of the cumulative DF until the closest value is found.
    The third step is confusing me because I don’t know where to look for that relative row? Do I need to calculate it by myself or there is a table that I will be able to use?
    For example find IRR of a project with initial investment of £50,000 the return are expected to be £10,000 each year of seven years cost of capital is 10%
    I worked out the annuity is £50,000/10,000= 5
    And the answer after it says using the table and life of seven years, the closest annuity factor to 5 is 5.033. this means the IRR is approximately 9%
    The question is where the table is? In the exam does the question provide the table? Or do I need to calculate it by myself? If it is how to calculate it?

    April 9, 2018 at 6:36 am #445745
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You are given both present value tables and annuity tables in the exam (and also a formula sheet). You can find what they look like at the beginning of our free lecture notes.

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