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NPV & IRR

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

Viewing 4 posts - 1 through 4 (of 4 total)
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  • March 11, 2018 at 7:08 pm #442238
    mykekal
    Member
    • Topics: 8
    • Replies: 23
    • ☆

    There are times when calculating the IRR I am unable to get a negative NPV (sometimes, not even close to zero) when the highest rate of 20% is used from the NPV Tables.

    What should I do in these instances? Is it OK to compute the IRR with these very high positive NPV? The results sometimes have a significant difference between IRR (40%) and the Cost of Capital (10%).

    March 12, 2018 at 5:14 am #442269
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    That will not be the case in the exam – in the exam the IRR will always be less than 20%.

    However you can estimate the IRR in the normal way, even if you get two positive NPV’s.

    Have you watched my free lectures on this?

    March 13, 2018 at 4:30 am #442412
    mykekal
    Member
    • Topics: 8
    • Replies: 23
    • ☆

    Hi John,

    Thank you for the response. Yes, I watched the video. From a practical perspective, if I am faced with the scenario I outlined, how should I go about this?

    March 13, 2018 at 8:13 am #442424
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    But I have answered you – you can approximate to the IRR using any two ‘guesses’ (even if both result in positive NPV’s)

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