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Forums › ACCA Forums › ACCA FM Financial Management Forums › How to choose Lower rate and Higher Rate for IRR
Hi
Does anyone know in question relating to WACC, when you calculate cost of debt, what determines the lower r and higher r you use?
Thanks
Nothing determines it. Any two sensible guesses are OK (even though different guesses obviously give slightly different answers due to the fact that the relationship is not linear).
You should watch the free lecture on this!
Calculate second NPV using a different rate
If first NPV is positive, use second rate
greater than first rate
If first NPV is negative, use second rate
less than first rate