Question

# (IRR, payback, and calculating a missing cash flow) Mode Publishing is considering building a new printing...

(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)

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

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