Calculations of the IRR based on a value of r = 5% give a NPV value of £234,000. Trying the effect of increasing and decreasing r gives - £876,000 when r = 10% and £456,000 when r = 2%. Which of the following values of r is most likely to be correct?
A) 9.7%
B) 6.2%
C) 1.7%
D) 2.5%

Question

Quizplus · Accepted Answer

The IRR is the rate at which the NPV equals zero. Given that NPV decreases as r increases (from £456,000 at 2% to -£876,000 at 10%), the correct r must be between 5% (where NPV is positive) and 10% (where NPV is negative). Among the options, 6.2% is the only rate that falls within this range, making it the most likely correct value.

Calculations of the IRR Based on a Value of R