Question

(IRR, payback, and calculating a missing cash flow) Mode Publishing is considering building a new printing facility that will involve a large initial outlay and then result in a series of positive cash flows for 4 years. The estimated cash flows associated with this project are:

Year	Project Cash Flow
0	?
1	800 Million
2	400 Million
3	500 Million
4	100 Million

If you know that the project has a regular payback of 2.8 years, what is the initial cash outlay of the project? (Round to the nearest whole number)

What is the project's internal rate of return? (Round to two decimal places)

Answer 1

Intial investment = 1*CF1 + 1*CF2 + 0.8*(CF3)

=800+400+0.8*500=1600

IRR is the rate at which NPV =0
IRR	6.34%
Year	0	1	2	3	4
Cash flow stream	-1600.000	800.000	400.000	500.000	100.000
Discounting factor	1.000	1.063	1.131	1.203	1.279
Discounted cash flows project	-1600.000	752.297	353.720	415.785	78.198
NPV = Sum of discounted cash flows
NPV Project =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor