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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Internal Rate of Return

- This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.

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- January 2, 2022 at 4:47 pm #645199
Hi Mr. John

I find this question quite tricky. I understand the definition of IRR is the rate at which NPV is zero and I understand the calculation in this question but I do not arrive at zero if you know what I mean. Please be kind enough and explain this question to me detail.A machine has an investment cost of $60,000 at time 0. The present values (at time 0) of the expected net cash inflows from the machine over its useful life are:

Discount rate Present value of cash inflows

10% $64,600

15% $58,200

20% $52,100What is the internal rate of return (IRR) of the machine investment?

A Below 10%

B Between 10% and 15%

C Between 15% and 20%

D Over 20%January 3, 2022 at 8:20 am #645211The NPV at 10% is +$4,600, at 15% is – $1,800 (and at 20% is – $7,900, but this is irrelevant),

For an NPV of zero the IRR must therefore be somewhere between 10% and 15%.

Have you watched my free lectures on this?

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