Dixon Limited has undertaken various capital investment appraisal calculations. Using a discount rate of 16%, the company has determined that its proposed investment project has a positive net present value of £100,000. Using a discount rate of 21%, the company has determined that its proposed investment project will have a negative net present value of £25,000. Given the above net present value calculations, what is the internal rate of return of the proposed investment project?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of a project is zero. Since the NPV is positive at 16% and negative at 21%, the IRR must be between these two rates. 20% is the only option between 16% and 21%.

Dixon Limited Has Undertaken Various Capital Investment Appraisal Calculations