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?
Ask the Tutor ACCA MA
Annuity factor with IRR
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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