Explain the procedure to find out irr, Financial Management

Assignment Help:

Q. Explain the Procedure to Find Out IRR?

Procedure to Find Out IRR:-

  • Step I : Compute the fake payback period

 

Fake Payback Period = Initial Cash Outflows / Average Cash Inflows

Average Cash Inflows = Total Cash Inflows during the life of the project / Number of year of life

  • Step II: Locate the closest figure to false payback period in the annuity table A-2 alongside the row of number of years of the project. The charge of that column will be the first discount rate.
  • Step III: Uncover the NPV of the project at the first discount rate located above. If NPV is positive decide one more discount rate which should be higher than the first discount rate thus that the second NPV may be negative. Likewise If NPV from first discount rate located above is negative determine second rate lower than the first rate therefore that second NPV may be positive. At the present there are two NPVs at two different rates one is positive and other is negative.
  • Step IV: Now consider the following formula to find IRR:

NPV at lower discount rate

IRR = Lower discount rate +------ X Difference in discount rate

NPV at lower discount rate - NPV at higher discount rate


Related Discussions:- Explain the procedure to find out irr

Benefits of securitization, Securitization has attracted a widespread...

Securitization has attracted a widespread application of the technique to residential mortgage loan, the easiest class of a financial asset to securitize, and to

Financial derivatives, Do you provide plaigerism free solutions to question...

Do you provide plaigerism free solutions to questions or do you only tutor?

Export/import bank (eximbank), Export/Import Bank (Eximbank) Federal Im...

Export/Import Bank (Eximbank) Federal Import-Export Bank, whose mainly function originally was to compensate U.S. exporters for subsidies approved competitors by foreign govern

Disadvantages of just-in-time inventory management, Q. Disadvantages of jus...

Q. Disadvantages of just-in-time inventory management? A JIT inventory management system mayn't run as smoothly in practice as theory may predict since there may be little room

COST OF CAPITAL, cost of capital, Financial Management The Nu-Nu Brothers I...

cost of capital, Financial Management The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equ

Define country risk, Define country risk. How is it different from politica...

Define country risk. How is it different from political risk? Country risk is a broader quantify of risk as compared to the political risk, as the former encompasses political ri

Working capital, which are the components of working capital management?

which are the components of working capital management?

Explain common methods for controlling translation exposure, It is, usually...

It is, usually, not possible to totally eliminate both translation exposure and transaction exposure.  In few cases, the elimination of one exposure will as well eliminate the othe

Discounting technique for calculating time value of money, DISCOUNTING TECH...

DISCOUNTING TECHNIQUE is also called present value technique. It is the process of calculating the present value of cash flows.  Discounting is determining the present value of a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd