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com IRR Formula

Q:
ABC acquired a machine under the finance lease. Machine normally costs EUR 300 000. ABC
pays for machine with 4 payments: at the end of 1st year - 100 000, at the end of 2nd and
3rd year - 80 000 and at the end of 4th year - 70 000. What is the interest rate implicit in the
lease?

A:
Interest rate implicit in the lease = internal rate of return. See calculation below.

Year Cash flows

0 300,000
1 -100,000
2 -80,000
3 -80,000
4 -70,000
Total -30,000

IRR: 4.16%
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www.ifrsbox.com NPV Formula

Q:
ABC wants to build new asset and assumes the following cash flows from it: initial
investment = 200 000, revenues in years 1-3 = 35 000 p.a., revenues in years 4-9 = 28 000
p.a., asset removal costs in the year 10 = 10 000. ABC requires the rate of return of 5% on its
investment. Determine whether the project is feasible or not.

A:
We will calculate NPV at 5% for ABC's cash flows from the project. As seen from calculation,
NPV>0, so the project is feasible.

Year Cash flows

0 -200,000
1 35,000
2 35,000
3 35,000
4 28,000
5 28,000
6 28,000
7 28,000
8 28,000
9 28,000
10 -10,000
Total 63,000

Discount rate: 5%

NPV: 11,373.91
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www.ifrsbox.com YIELD Formula

Q:
On 12 January 2012, ABC acquires untraded corporate bonds issued by XY with the
following parameters: nominal price = 100 000, redemption at par, interest rate: 5.5% p.a.,
interest paid 1xyear, maturity date: 10 October 2016, market price: 93 400.
Calculate ABC's rate of return on this bond at the purchase.
A:
Rate of return on XY's bond = its yield. See calculation below.

Parameter name: Value: Comment:

Settlement date: January 12, 2012 Date of purchase, or date of closing the accounts

Maturity date: October 9, 2015 Bond's final maturity date

Rate: 5.50% Coupon or interest rate

Price: 93.40 Bond's market price per 100 USD of face value

Redepmtion: 100.00 Bond's redemption value per 100 USD of face value; if at par, then it

Frequency: 1 Number of coupon/interest payments per year

Basis: 4 Type of day count; I usually use European (n. 4), which is 30/360

YIELD: 7.58%
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 www.ifrsbox.com YIELD Formula

ng the accounts

of face value

USD of face value; if at par, then it is 100

ents per year

uropean (n. 4), which is 30/360