PRC-2 · Chapter 6 · Question 11 of 45
A proposed project has an NPV of Rs. 6,000 when discounted at 10%, and an NPV of Rs. (2,000) when discounted at 14%. Using the linear interpolation formula, what is the approximate IRR?
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Reveal answer & explanation
Correct answer: C) 13%
Explanation
Using linear interpolation: IRR = L + [NPV_L / (NPV_L - NPV_H)] * (H - L). IRR = 10% + [6000 / (6000 - (-2000))] * (14% - 10%). IRR = 10 + (6000 / 8000) * 4 = 10 + (0.75 * 4) = 10 + 3 = 13%.
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