Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.

Time:	0	1	2	3	4	5
Cash flow:	–$242,000	$66,500	$84,700	$141,700	$122,700	$81,900

IRR=____%?   round your final answer to 2 decimal places.)

Answer 1

Let irr be x%
At irr,present value of inflows=present value of outflows.

242,000=66,500/1.0x+84,700/1.0x^2+141,700/1.0x^3+122,700/1.0x^4+81,900/1.0x^5

Hence x=irr=27.76%(Approx).