An investment has a positive net present value of £7,750 at 12% and a negative NPV of £2,250 when the interest rate is increased by 6%. What is the approximate IRR for the investment (to 2 decimal places)? a. 21.30% b. 18.78% c. 16.65% d. 10.65%

An investment has a positive net present value of £7,750 at 12% and a negative NPV of £2,250 when the interest rate is increased by 6%. What is the approximate IRR for the investment (to 2 decimal places)? a. 21.30% b. 18.78% c. 16.65% d. 10.65%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

An investment has a positive net present value of £7,750 at 12% and a
negative NPV of £2,250 when the interest rate is increased by 6%.
What is the approximate IRR for the investment (to 2 decimal places)?
a. 21.30%
b. 18.78%
c. 16.65%
d. 10.65%

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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