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Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as
$50. If the interest rate is increased by 1% the NPV of the project falls by S20.
What is the internal rate of return (IRR) of the project?Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and
explanations 🙂As you will know from my free lectures on this, the IRR is the rate of interest at which the NPV is zero.
Here, at 10% the NPV is $50. If the interest rate is 11% then the NPV is 50 – 20 = $30. If the interest rate is 12% the NPV is 30 – 20 = $10. If the interest rate is 13%,
the NPV is 10 – 20 = -$10.So now you should be able to see what the interest rate will have to be for the NPV to be zero 🙂
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