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IRR Keep getting different answers

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › IRR Keep getting different answers

  • This topic has 5 replies, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 18, 2014 at 12:59 pm #159244
    williams1977
    Member
    • Topics: 12
    • Replies: 27
    • ☆

    Hi Everyone

    Hope we are all geared up and studying hard for the summer 🙂

    I am working through the opentuition lecture notes and I am stuck on an IRR calculation question, chapter 7 example 10

    February 18, 2014 at 12:59 pm #159245
    williams1977
    Member
    • Topics: 12
    • Replies: 27
    • ☆

    you have to calculate cost of debt. the example uses discount rates of 5% and 10%. and gives an answer of 7.51%

    But when I do the calculation using rates of 5% and 15% i get an answer of 7.88%

    If I try again using 4% and 13% I get an answer of 7.9%

    February 18, 2014 at 1:09 pm #159249
    williams1977
    Member
    • Topics: 12
    • Replies: 27
    • ☆

    How come I am getting different answers

    February 18, 2014 at 5:01 pm #159296
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    It is because the relationship is not linear.

    Different guesses will give different answers, and that does not matter – you will still get full marks. (If you are more than 1% different, then you have probably made a mistake, but otherwise no problem 🙂 )

    February 18, 2014 at 6:26 pm #159318
    williams1977
    Member
    • Topics: 12
    • Replies: 27
    • ☆

    Thank you John, that really helps. It has been driving me nuts!

    February 18, 2014 at 6:42 pm #159319
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You should have watched my lecture on this for Paper F9. 🙂

    Glad you are sorted anyway.

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Viewing 6 posts - 1 through 6 (of 6 total)
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