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If the question is to find the best estimate of IRR, how to choose the rates ?
I know the relation between NPV & Cost of capital however if the rates are
5% – 90
10% – 40
15% – (3)
20% – (41)
Which two should i choose ? The answer options will be more or less same isnt it
You are unlikely to be given 4 rates like the in the exam.
However, because the answer is always approximate (because we assume the relationship is linear, whereas in fact it is not), the best approximation will be by taking the lowest positive NPV (which is from 10%) and the lowest negative NPV (which is from 15%).
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