VKU Limited is planning a capital investment. Using a discount rate of 15%, the company has determined that its proposed investment project has a positive net present value of + £15,280. Using a discount rate of 19%, the company has determined that its proposed investment project will have a negative net present value of £3,660. Given the above net present value calculations, what is the internal rate of return of the proposed investment project to two decimal places?

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 15% and negative at 19%, the IRR must be between these two rates. Using interpolation, the IRR is approximately 18.23%.

VKU Limited Is Planning a Capital Investment