NPV & IRR

This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.

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March 11, 2018 at 7:08 pm #442238
mykekal
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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
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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
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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
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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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