1. **Problem Statement:** Calculate the Internal Rate of Return (IRR) for TechMinds Ltd's new software system investment using the interpolation method given: - Initial cost = 80000 - Annual savings = 20000 for 5 years - Scrap value at year 5 = 10000 - NPV at 15% = +2635 - NPV at 20% = -3480 2. **Explanation:** The IRR is the discount rate where NPV = 0. Since the NPV changes sign between 15% and 20%, IRR lies between these rates. 3. **Interpolation Formula:** $$ IRR = r_1 + \frac{NPV_1}{NPV_1 - NPV_2} (r_2 - r_1) $$ where: - $r_1=0.15$ (15%) with $NPV_1=2635$ - $r_2=0.20$ (20%) with $NPV_2=-3480$ 4. **Calculate IRR:** $$ IRR = 0.15 + \frac{2635}{2635 - (-3480)} (0.20 - 0.15) $$ $$ IRR = 0.15 + \frac{2635}{2635 + 3480} \times 0.05 $$ $$ IRR = 0.15 + \frac{2635}{6115} \times 0.05 $$ $$ IRR = 0.15 + 0.4307 \times 0.05 $$ $$ IRR = 0.15 + 0.0215 = 0.1715 \text{ or } 17.15\% $$ 5. **Interpretation:** The IRR of 17.15% is the project's estimated return rate. 6. **Advice:** Since the required rate of return is 18%, and IRR (17.15%) < 18%, the project does not meet the minimum required return. **Conclusion:** The project should be rejected as it is expected to generate a return less than the required 18%.