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Hello sir ! There is one question in Bpp Kit. Named FENCE co . In this they have not exactly mentioned the cost of capital is 4% ….
The cost of capital that we used to calculate IRR
rather in solution they have use risk free rate of return 4% . Are they both sameI am out of the country on vacation until Saturday, and I do not have the Revision Kit with me.
If it is marked as a past exam question then tell me which date (because I can access the past exams).
Otherwise ask me again on Saturday and I will answer you then.
I have found the question 🙂
Nowhere in the answer is it suggested that the cost of capital is 4% (and it certainly is not 4%!!).
When calculating the IRR we can use any two guesses (as I explain in my free lectures). The answer happens to have used 5% and 4% but it does not have to be these two. (And of course, in Section C questions these days you do not need to make two guesses because you can use the IRR function in the spreadsheet provided and get an exact IRR as opposed to an approximation 🙂 )
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