Upz. The above 2 questions pls help me
Plus fr 2013 ZA 4c how to get the implicit rate of 12%?
Thanks a lot!
Remember during POA need to calculate the IRR. Use that method to find the implicit rate of interest.
Use the trial and error method:
Implicit interest rate at 10% , the NPV will be:
= 6,684k - debenture interest 640k x 4.355 annuity at 10% - debenture redemption at Y6 2012: 8,000k x 0.564 PV = (615.2k)
Implicit interest rate at 14% , the NPV will be:
= 6,684k - debenture interest 640k x 3.889 annuity at 14% - debenture redemption at Y6 2012: 8,000k x 0.456 PV = 547k
You may show the workings in the NPV Tabular format.
So the implicit rate is interest is when the NPV is zero (same way as calculating the IRR)
Implicit rate of interest is = 14% - 547k/(547-(-615.2) x (14% - 10%)
= 12% (rounded)
Credits: Joanna