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Hi John,
I was wondering if you could explain how the examiner calculated teh NPV at 14% and 18% of the optimum plan in section a ii of this question.
Thank youAre you asking why 14% and 18% were the rates chosen?
If so, then always when we are calculating the IRR we make two ‘guesses’ and then interpolate between them. Any two guesses will do – I personally would probably have chosen 10% and 20% – but different guesses will give a slightly different answer because the relationship is not linear. That does not matter in the exam – whichever guesses you use, the answer is only ever approximate.
If you are still unsure about this, then do watch my free lectures on this (they are in F2 and F9 as well because it is revision from those papers).If your problem was something else in this question, then do ask again 🙂
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