Question

The NPV of a project decreases with discount rate r. When r=10%, NPV=$10 million; when r=11%, NPV= -$5 million. The IRR of this project must be ________.

Group of answer choices

a. Above 11%.

b. Below 10%.

c. Not enough information.

d. Between 10% and 11%.

Answer 1

Answer:
Calculation of IRR
Formula =	Lower rate +	NPV at lower rate	x (Higher rate - Lower rate)
		NPV at lower rate - NPV at higher rate
NPV at Lower rate	0.10000		NPV at higher rate	0.11000
NPV	10.00	(in $, million)	NPV	-5.00	(in $, million)
IRR=	10% +	10.0000	x (10-11)%
		15.0000
IRR=	10% +	0.6667*1%
IRR=	10% +	0.6667%
IRR=	10.67%
So, from the above calculation, it can seen that the IRR of the project must be d. between 10% and 11%.