00:01
Hello in order to find irr we will use hit and trial method under hit and trial method we assume different discount rate.
00:16
So let us assume the discount rate as 20 % firstly, we will calculate net present value formula for the sale is present value present value of cash inflow minus present value of cash outflow so the present value at rate 20 % will be 37 ,000 multiplied with pvaf factor at 20 % for 7 years minus present value of cash outflow that is given as 1 ,30 ,000 so present value of cash inflow will be 1 ,33 ,385 minus 1 ,30 ,000 so here the npv will be 3 ,385 let us take this as lower discount rate that is ldr.
01:34
Here at the rate of 20 % npv is near to 0 so let us take a closer value of discount rate let us assume higher discount rate as 21 % so the net present value using the same formula will be 37 ,000 multiplied with pvaf factor at 21 % for 7 years minus 1 ,30 ,000 so it will be 37 ,000 multiplied with pvaf factor that is 3 ,508 minus 1 ,30 ,000 so by solving this we will get npv at higher discount rate as minus 204.
02:32
Now let us calculate irr and the formula for same is lower discount rate plus npv at lower discount rate multiplied with higher discount rate minus lower discount rate divided by npv at lower discount rate minus npv at higher discount rate...