Hi all, I understand the interpretation of IRR on page 219 of Reading 6, Vol 1. However, it says this on the 5th line in the first paragraph (after the example) - " If we subtract a capital charge of Y270,570,310 (the amount of a 5-year annuity having a PV of Y1,000 million at 11%)…" How did it arrived at the figure of Y270,570,310? Is it using FV = A [(1- (1 + R)^n) / r] ? if so i cannot get it to the Y270,570,310 having A = Y1,000 million (as I’m thinking you’d want the FV of the capital charge???) Please help, trying to digest this bit
Terminology based on TI BA II Plus calc: Do PV = -1000 N=5 I/Y=11 CPT PMT Gives you 270.570310
thank you so much for the explanation.
There’s another example in very next section (table 3) where two projects are compared.
I would like to understand how a crossover discount rate was calculated for following note #6:
Take the difference in the project cash flows, say cashflow of project A minus cashflow of project D:
T = 0: -10,000 - (-10,000) = 0
T = 1: 15,000 - 0 = 15,000
T = 2: 0 - 0 = 0
T = 3: 0 - 21,200 = -21,200
Calculate the IRR of the difference in the cash flows and you will get the crossover rate.