CIMA BA1 · Chapter 13 · Question 8 of 10
A project has a net present value of +$2,400 at a discount rate of 10% and -$1,600 at a discount rate of 15%. Using linear interpolation, what is the estimated internal rate of return?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 13.0%
Explanation
IRR = L + (NPV at L / (NPV at L - NPV at H)) x (H - L) = 10% + (2,400 / (2,400 + 1,600)) x 5% = 10% + 0.6 x 5% = 13.0%.
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