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Microwave Oven Programming, Inc is considering the construction of a new plant. The plant will have...

Microwave Oven Programming, Inc is considering the construction of a new plant. The plant will have an initial cash outlay of $8 million, and will produce cash flows of $3 million at the end of year 1, $4 million at the end of year 2, and $2 million at the end of years 3 through 5. What is the internal rate of return on this new plant?

The internal rate of return on this new plant is

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Answer #1
Plant
IRR is the rate at which NPV =0
IRR 0.212553475
Year 0 1 2 3 4 5
Cash flow stream -8 3 4 2 2 2
Discounting factor 1 1.212553 1.470286 1.7828 2.1617407 2.621226
Discounted cash flows project -8 2.474118 2.720559 1.121831 0.9251803 0.763002
NPV = Sum of discounted cash flows
NPV Plant = 0.004689592
Where
Discounting factor = (1 + IRR)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
IRR= 21.26%
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