hello John
hope you are well
i have one quick question regarding IRR calculations in exams.
Q4b - June 2012. do we need to assume and try a rate in exam to get negative npv in order to calculate IRR?
in this question the cost of capital is 12.75% which gives a positive npv
but we do then need to assume through trail and error to find a cost of capital which would give us negative npv in exams?
here if i try 28% and anything above 30% can give me negative npv
please help
thanks
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p4 IRR Calculation
8y ago#1Ideally, your second rate to try should give a negative NPV (because this will give a better approximation to the IRR - the IRR is always only an approximation).
However if you get two negative NPV's then you can still approximate to the IRR.
(Here, because the NPV is so high at 12.75%, and because the figures for Zeta are so high, it would be sensible to try a pretty high second guess :-)
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