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Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › IRR Example
A company is considering to purchase a piece of equipment costing 120000 that would save 30000 per year for five years. After five years it will be sold for 15000. The company requires every project to yield a return of 10% or more otherwise they will be rejected. Should this equipment be purchased?
My question is at what rate should I discount the cash flows to reach NPV while 10% is target IRR ?
In future please ask in the Ask the Tutor Forum if you want me to answer.
You need to discount at 10% – if the NPV is positive then they would accept, whereas if the NPV is negative they should reject.