Question

4. Professional Presentation Technology, Inc. is considering the manufacture of a new multi-functional projector for use in school classrooms as well as for salespersons in business. The proposed project to develop this new system has the following estimated cash flows: Initial Cash Outlay = $3,500,000 Differential Cash Flows for Year 1 = $700,000; Year 2 = $1,900,000; Year 3 = $3,000,000; Year 4 = $200,000 The Company's required return is 25%. Compute the internal rate of return for the project. A) 46.86% B) 23.37% C) 61.91% D) 42.81%

Answer 1

Project
IRR is the rate at which NPV =0
IRR	0.233665342
Year	0	1	2	3	4
Cash flow stream	-3500000	700000	1900000	3000000	200000
Discounting factor	1	1.233665	1.52193	1.877553	2.3162715
Discounted cash flows project	-3500000	567414.8	1248415	1597825	86345.665
NPV = Sum of discounted cash flows
NPV Project =	6.14382E-08
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	23.37%