Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › IRR non-discounted payback period /discounted payback

- This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.

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- January 9, 2015 at 6:35 am #222153
the below working to asked one of the question – what is the IRR %? how to define whether my working is correct :

non discounted payback – NPV 130,000 positive

discounted payback – NPV 21,110 positive ( cost of capital 12%)my working : 130,000 / 21,110 = 6.1582 + 12 %= 18.1582 whether is correct ?

because answer is 18%January 9, 2015 at 10:25 am #222175I am sorry but either you have copied the question wrong, or the question in whatever book you found it is nonsense.

The payback period is measured in years – a payback period cannot possibly be a NPV.

January 11, 2015 at 2:39 pm #222339The question did asked what is the payback period and discounted payback period:

My working

Payback

Cost 270,000

Year 1 50,000

Year 2 180,000

Year 3 100,000

Year 4 50,000

Year 4 scrap value 20,000

130,000 positiveNon payback period ( costs of capital 12% pa )

Cost 270,000

Year 1 44650

Year 2 143460

Year 3 71200

Year 4 31800

21110 positivePlease advice asking another question : what is the internal rate of return to the nearest % ?

the answer is 18% , please explain .January 11, 2015 at 3:58 pm #222343The 130,000 and the 21,110 are the net present values at 0% (when no discounting) and at 12%.

They are NOT the payback periods – the payback period is always measured in years as I wrote before.The NPV of 21,110 is not correct – you have forgotten to discount the scrap of 20,000 by 4 years. The correct NPV is 33,830

To calculate the IRR you need to guess at a rate higher than 12% – any rate, but I would try 20%. Then you approximate between the two rates in the way that I do in the lecture.

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