- This topic has 5 replies, 3 voices, and was last updated 9 years ago by John Moffat.

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- January 8, 2015 at 2:50 pm #222125
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% ?January 8, 2015 at 4:02 pm #222130The 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

January 8, 2015 at 4:11 pm #222133As 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.

January 9, 2015 at 4:12 am #222148please 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 = 12.57January 9, 2015 at 4:14 am #222149hi thanks advise

January 9, 2015 at 10:21 am #222174For a $20 change in NPV the interest rate changes by 1%.

For an NPV of zero, we need the NPV to change by $50.

So the IRR = 10% + ((50/20) x 1%) = 12.50%

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