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Investment appraisal – Discounted cash flow techniques

Question 10

IRR

A potential projects’ predicted cash flows give a positive NPV of $6,000 at a
discount rate of 9% and a negative NPV of $3,000 at a discount rate of 12%.
Calculate the project’s IRR.
N L
IRR = L + ——— (H – L)
N L – N H

IRR = 9 + [$6,000/($6,000 + $3,000)] × (12 – 9)

IRR = 9 + 0.667 × 3 = 11%

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