The Merriweather Printing Company is trying to decide on the merits of construct
ID: 1172588 • Letter: T
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.)
Year Project Cash Flow 0 ? 1 $770,000 2 420,000 3 270,000 4 510,000Explanation / 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).