- This topic has 3 replies, 2 voices, and was last updated 1 month ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
Viewing 4 posts - 1 through 4 (of 4 total)
- You must be logged in to reply to this topic.
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Npv question pls help sir
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 🙂
Thanks
You are welcome.