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: Year Project Cash Flow 0 ? 1 $800,000 2 $400,000 3 $300,000 4 $500,000 If you know that the project has a regular payback of 2.5 years, what is the project's IRR?
Module 5 Question 3
(Calculating IRR, payback, and a missing cash flow) 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:
Year Project Cash Flow
0 ?
1 $800,000
2 $400,000
3 $300,000
4 $500,000
If you know that the project has a regular payback of 2.5 years, what is the project's IRR?
IRR stands for Internal Rate of Return, which is a financial metric used to estimate the potential profitability of an investment. It represents the discount rate that makes the net present value (NPV) of cash flows from an investment equal to zero. In other words, it is the rate at which the investment's net cash inflows equal its outflows, taking into account the time value of money. The higher the IRR, the more attractive the investment opportunity is considered to be.
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