What is the Internal Rate of Return of the machine (to the nearest %)?
A 16%
B 17%
C 18%
D 19%
A company is considering investing in a new machine that will cost $270,000 and will last for 4 years with a
scrap value at the end of 4 years of $20,000.
It is expected to generate operating cash inflows each year as follows:
Year 1: $50,000
Year 2: $180,000
Year 3: $100,000
Year 4 $50,000
The cost of capital is 12% per annum.
sir how have u calculated the irr in this i cannot understand why have you taken it on 20 percent and then in irr you have assumed it as 8 percent please explain i have done the rest
Ask the Tutor ACCA MA
investment appraisal
10y ago#1In calculating the IRR you can make any two guesses and then approximate between them.
12% is an obvious first guess (since the cost of capital is 12%).
The reason I chose 20% as the second guess is simply because the choices of answers in the question go up to 19%. You could equally have choose 19% as your second guess.
I have not assumed anything at all. Any two guesses will do - the answer is only every approximate, which is they the questions asked to the nearest %.
If you have not already done so, then I do suggest that you watch the free lectures on this. Our lectures are a complete course for Paper F2 and cover everything you need to be able to pass the exam well.
thank you sir i have studied f2 from my personal tutor but the classes are over now and i was doing your notes individually so from wherever i get stuck i ask you :)
10y ago#3You are welcome :-)
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