13/8/20

Even Flows Co 20,000

C1 5,430 20,000
C2 5,430 5,430
C3 5,430
C4 5,430 IRR 16%
C5 5,430
C6 5,430 PVAn = PMT

5,430 1-
0.1
20,000 + 23,675
NPV 3,675
nal Rate of Return
20,000 3.683
Rule 5,430
If IRR > I/K/r - Accept
If IRR < I/K/r _ Reject IRR 16% Here the NPV gets zero
If IRR = i/k/r - accept

Market rate of return or investor Question 2 Co 16,000

rate of return C1 8,000
C2 7,000
Project A Projec t B C3 6,000
IRR 10% 10% C4
R/M 12% 8% C5 Just to begin with
C6 we take 20% first

At 20%
-16,000

-16,000

At 16%

-16,000

-16,000

At 15%

-16,000
One way is to write an IRR here is between 15% to 16
OR
comes an interpolation

PV required

PV at a lower rate, 15%

PV at a higher rate, 16%

IRR/ r 15% + (16% - 15%)

15% + 0.80% =
 3.683

1/ (1+0.10)6
0.1

he NPV gets zero

Required: Calculate the IRR

In this case we use the trial & error and then interpolation is used to find it accurately

begin with

8,000 / (1.20)1. 7,000 / (1.20)2 6,000 / (1.20)3

14,996
Rs.-1004

8,000 / (1.16)1. 7,000 / (1.16)2 6,000 / (1.16)3

15,943
RS.-57

8,000 / (1.15)1. 7,000 / (1.15)2 6,000 / (1.15)3

16,200
Rs.200
R here is between 15% to 16%
OR

Diffrence
Rs.16,000
200
16,200
257
15,943

200
257

15.80%