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CS Executive · Corporate Accounting and Financial Management · Capital Budgeting

Rohan Pharma is considering a project costing Rs 1,00,000 that produces Rs 60,000 at the end of each of the next 2 years. Using the discount rates given, the NPV at 10% is Rs 4,132 (approx.) and at 15% is Rs -2,470 (approx.). Which statement about the project's IRR is correct?

The IRR lies between 10% and 15%. IRR is the discount rate at which NPV equals zero. Since NPV is positive at 10% and negative at 15%, the NPV must turn zero somewhere between those two rates.

  1. AIRR is below 10%
  2. BIRR is exactly 10%
  3. CIRR is between 10% and 15%Correct
  4. DIRR is above 15%

Explanation

IRR is the rate at which NPV is zero. NPV is positive at 10% and negative at 15%, so NPV crosses zero between these rates. Hence IRR lies between 10% and 15% (roughly 13%). Options saying below 10% or above 15% ignore the sign change.

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