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Hello,
I have trouble understanding part b) of this question, precisely how did they got 20% disc.factor?
Thank you in advance
BR
I think you are using an old edition of the Revision Kit because this question does not appear in the current edition!
However I have found the question 🙂
When calculating the IRR we always need two ‘guesses’. We already know the NPV at 12% from part (a). The second guess can be whatever you want – they have chosen to use 20%.
I do really suggest that you watch my free lectures on this (and if needed then F2 lectures on investment appraisal, because this is revision of F2). The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
As I explain in the lectures, using different guesses will result in a slightly different IRR (because the relationship is not linear) but that does not lose marks in the exam.
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