Payback Period, IRR, and Minimum Cash Flows The management of Mohawk Limited is

Question

Payback Period, IRR, and Minimum Cash Flows The management of Mohawk Limited is currently evaluating the following investment proposal: Time 0 Year 1 Year 2 Year 3 Year 4 Initial investment 150,000 Net operating cash inflows $50,000 $50,000 $50,000 $50,000 (a) Determine the proposal's payback period. years (b) Determine the proposal's internal rate of return. (Refer to Appendix 12B if you use the table approach.) 12.59 x% (c) Given the amount of the initial investment, determine the minimum annual net cash inflows required to obtain an internal rate of return of 16 percent. Round the answer to the nearest dollar. 53,606 V Check

Explanation / Answer

b) IRR is the rate of return at which Cash Inflow is equal to Cash outflow

At 12.59% Cash Inflow is equal to Cash Outflow but as we have to write without decimals then

IRR = 13% or 12.6% ( If one decimal is allowed )

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