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Hello Dear Tutor.
Can you please make for me clear two questions :
for the above mentioned question in A.I is written that IRR can’t be calculated on proportion of projects and therefore calculation is assumed on whole project. why ?
in the same question B maximum cost of capital is calculated 10% + PI index 0.07652=17.652 . if we calculate by this we get negative NPV -121.
can you explain please why was rate calculated like this ?thank you in advance,
With regard to your first question, we could calculate the IRR on just a proportion of a project – that is what I would have done in the exam.
With regard to your second question, remember that it is looking at short-term funding just for one year. After one year there is no problem – they can borrow more at 10%. They can do the remaining projects if they borrow extra for one year – albeit at a higher rate.
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