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Question 4.Act.14: When we discounted the cash flows of the Billingsgate Batter...

When we discounted the cash flows of the Billingsgate Battery Company machine project at 20 per cent, we found that the NPV was a positive figure of £24,190 (see p. 141 ).

What does the NPV of the machine project tell us about the rate of return that the investment will yield for the business (that is, the project’s IRR)?

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As the NPV is positive when discounting at 20 per cent, it implies that the project’s rate of return is more than 20 per cent. The fact that the NPV is a pretty large amount implies that the actual rate of return is quite a lot above 20 per cent.

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