The directors of TZA Limited are evaluating a new investment project which has a positive net present value of £4,000 when the project cash flows are discounted at a rate of 12%. When the investment project cash flows are discounted at the rate of 17%, the net present value of the project is - £2,000. What is the internal rate of return of the new investment project?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of a project zero. Since the NPV is positive at 12% and negative at 17%, the IRR must be between these two rates. Using interpolation, the IRR is approximately 15.33%.

The Directors of TZA Limited Are Evaluating a New Investment