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Chapter 14

A company has an NPV of $4,400 at a discount rate of 10% and an
NPV of -$31,000 at 20%. Calculate the IRR

You need to remember the rules of maths. Remove the brackets first,
then deal with and division or multiplication and finally addition and
subtraction (BODMAS)

IRR = 10 + [4,400 ÷ (4,400 – –31,000)] × (20 – 10)

IRR = 10 + (4,400 ÷ 35,400) × 10

IRR = 10 + 0.1243 × 10

IRR = 10 + 1.243 = 11.24%

Illustrations and further practice

Now try TYU questions 10 and 11 from Chapter 14

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