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John Moffat.
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John1998m
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Please correct me that if there is an increase in the cost of capital but that will have no effect on IRR (I got this from BPP kit – which I don’t understand why)? Can you please comment why the cost of capital is not relevant to the IRR even though we used two different discount factors while calculating IRR.
John Moffat
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The IRR is, by definition, the rate of interest that results in the NPV of the project being zero.
Although we do use two guesses of interest rates to estimate the IRR, the IRR is the same whatever the cost of capital is.
Do watch my free lectures on IRR (and if necessary that lectures on IRR in Paper MA, because it is revision from Paper MA).
John1998m
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