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sir my question is why is that when internal rate of return is more than cost of capital we accept it else we reject
like what is exactly relationship between these two like what kind of relationshipcan u explain me sir please
The IRR is the rate of interest at which the NPV is zero.
The higher the interest rate then the lower the NPV. So if the cost of capital is higher than the IRR the NPV will be negative and therefore we will reject. If the cost of capital is lower, then the NPV will be positive and therefore we will accept.
For more, you should watch my free Paper F2 lectures on investment appraisal (because this is revision from F2) where I explain this in detail. I obviously cannot type out the whole lecture here 🙂
Thanks sir I got
So basically sir if irr is rate at which npv is 0So here if irr > cost of capital means inflow at irr rate covers outflow
And if cost of capital is more than irr means negative npv is being produced
Right sirTrue, but again – you really should watch the free lectures.
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
You will not pass the exam without studying, and you must either watch our free lectures, or pay to attend a course with one of the other tuition providers, or buy a Study Text from one of the ACCA approved publishers and study from there.
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