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Capital budgeting

To calculate the IRR:

 Calculate two NPVs for the project at two different costs of capital. The higher
the discount rate – the lower the NPV will be.

 Use the following formula to find the IRR:

N L
IRR = L + ——— (H – L)
N L – N H

where: L = lower discount rate

H = higher discount rate

NL = NPV at the lower discount rate

NH = NPV at the higher discount rate.

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