(Calculating IRR payback and a missing cash flow) If you know that the project h

Question

(Calculating IRR payback and a missing cash flow)
If you know that the project has a regular payback of 2.9 years, what is the projects IRR?

P11-13 (similar to Question Help (Calculating IRR, payback, and a missing cash flow) The Merriweather Printing Company is trying to decide on the merits of constructing a new publisihing laclity. 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 YearP Project Cash Flow $820,000 420,000 260,000 460,000 If you know that the project has a regular payback of 2.9 years, what is the project's IRR? The IRR of the projo Round to two decimal places.) Enter your answer in the answer box and then click Check Answer Clear All Check Answer 5 6 7 8 9

Explanation / Answer

Since the Payback is 2.9 Years, This means that the Initial Investment = Amount Received in 2 Years + 0.9 of Amount received in the 3rd Year

= $ 820,000 + $ 420,000 + ( $ 260,000 *.09)

= $ 1,240,000 + $ 234,000

= $ 1,474,000

Let the IRR be x.

Now , Present Value of Cash Outflows=Present Value of Cash Inflows

1,474,000=820,000/(1.0x) +420,000/ (1.0x)^2 +260,000 /(1.0x)^3 +460,000 /(1.0x)^4    

Or x= 14.63%

Hence the IRR is 14.63%

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