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Investment Appraisal Question….

Paul Naybour Paul Naybour

Published: 17th January 2016

Hi – attending the course in Reading in February. Working through the Investment Appraisal (8.3) section and I’m struggling on a couple of points.  First is probably a very simple math thing but doesn’t make sense to me… The discount is talked about as 10% for the NPV example yet the multiplyer is .909 yr 1, 0.826 yr2 – etc probably a clever compound interest accountancy thing, but I’m unclear on why?
Second is more about why you would need to work out IRR? The figure 8.6 plots two the results of using two percentages to identify the percentage that will give you the payback when you need it.  This assumes your payback period is fixed and you can decide the discount percentage. Is this right? What does the information allow you to do? What is the purpose of calculating this?