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IRR

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › IRR

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 29, 2015 at 5:49 am #279467
    anu1234
    Member
    • Topics: 78
    • Replies: 65
    • ☆☆

    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

    October 29, 2015 at 7:30 am #279483
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    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%).

    October 29, 2015 at 7:37 am #279486
    anu1234
    Member
    • Topics: 78
    • Replies: 65
    • ☆☆

    Thanks John 🙂

    October 29, 2015 at 4:40 pm #279544
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    You are welcome 🙂

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