The Merriweather Printing Company is trying to decide on the merits of construct

Question

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:

If you know that the project has a regular payback of 2.2 ?years, what is the? project's IRR?

The IRR of the project is ____?%.?(Round to two decimal? places.)

Explanation / Answer

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

=$770,000+$420,000+(0.2*$270,000)

=$1244000

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

$1244000=770,000/1.0x+420,000/1.0x^2+270,000/1.0x^3+510,000/1.0x^4

Hence x=irr=24.38%(Approx).

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