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In the answer given in the Kaplan book, it took 20% as the discount rate and then applied the relevant figures in the IRR formula. Could you please explain why 20% is to be taken.
An investment project with no residual value has a net present value of $87,980 when it is discounted using a cost of capital of 10%. The annual cash flows are as follows: Year $
0 (200,000)
1 80,000
2 90,000
3 100,000
4 60,000
5 40,000A 17.3%
B 17.9%
C 18.3%
D 18.9%As I explain in my lectures you can use any two guesses for calculating the IRR. However because of the choices available for the answer is make sense to use one higher than any of the choices, which limits you to either 19% or 20%.
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