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In your lecturer has been explain if NPV + 6660 need fall in NPV of 6660 and -8820 is fall of 8820 is equal to 5%.
Please give an example, if the questions give the interest rate is increase by the NPV of the project falls, how we going to find IRR ?
What’s the main purpose to estimate the two of discount factor 10% (NPV +6660) and 15%
(-8820) ?
Why NPV +6660 need to fall in NPV of 6660 & -8820 fall of 8820 equal to 5% ?The whole idea behind IRR is a form of test to determine at which point our NPV becomes negative, let’s say for example you have a NPV of $8,000 and you used a discount factor of 5% to arrive at that answer, for u to get your IRR all u need do is increase your NPV to let’s say 10%, by the time u do this ur new NPV should be negative
As I explain in the lecture, the definition of the IRR is that it is the rate of interest at which the NPV is zero.
I do explain it very carefully in the lecture and I do suggest that you watch it again (obviously with the course notes in front of you) – I can not simply type out the lecture here.
please explain the following questions even I have the answer is 12.50%.
question
Using an interest rate of 10% per year the NPV of a project has been correctly calculated as $50. if the interest rate is increased by 1% the NPV of the project falls by$20.
what is the internal rate of return (IRR) of the project ?
my working : IRR =10% + ( 50 / 70 x 9 ) = 10 + 6.4 = 16.4
correct should be : IRR = 10% + (20/70×9) =10 + 2.57 = 12.57
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