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

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 1 year ago

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