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The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing...

The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as​ follows:

Year

Project Cash Flow

0

          ​ ?

1

​$780,000

2

  350,000

3

  270,000

4

  510,000

If you know that the project has a regular payback of 3 ​years, what is the​ project's IRR? The IRR of the project is (?)​%. ​(Round to two decimal​ places.)

Solutions

Expert Solution

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

Hence initial cost =780,000+350,000+270,000

=$1,400,000

Let irr be x%
At irr,present value of inflows=present value of outflows.

1,400,000=780,000/1.0x+350,000/1.0x^2+270,000/1.0x^3+510,000/1.0x^4

Hence x=irr=15.48%(Approx)

jeff jeffy answered 3 years ago
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