CA Inter P6 · Chapter 7 · Question 4 of 10
A project has an NPV of ₹ 18,000 at a 12% discount rate and an NPV of -₹ 6,000 at 16%. Using linear interpolation, its IRR is approximately:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 15%
Explanation
IRR = lower rate + [NPV at lower rate / (NPV at lower rate - NPV at higher rate)] x difference in rates = 12% + [18,000 / (18,000 + 6,000)] x 4% = 12% + 0.75 x 4% = 15%. Dividing by 18,000 - 6,000 instead of 18,000 + 6,000 is a common error.
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