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Hello Chief,
My question is when it comes to IRR calculation of YTM or Cost of debt redeemable debt, how to determine the highest and lowest DF %? is there a specific mechanism to derive 2 factors or should be 2 random factors? All these time I randomly selected the 2 DFs (i.e 5% & 10%) and got stuck with one question were as they have used 5% & 12%. Please clarify this to me.
Thank you,
Hi,
You can effectively choose any two rates, however the closer your original guesses are to the actual answer the more accurate your answer will be.
Ideally one posiitve and negative NPV is desirable, hence why we usually see 5% and 10%, as these tend to give what we require. The best solution would be to start with 10% to see if it gives us a positive or negative NPV. If it gives a negative NPV then make your second guess lower than 10%. If it is positive then make the second guess higher to give a negative NPV.
Thanks
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