Question

Management of Matthew Young, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $357,598. They project that the cash flows from this investment will be $142,610 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Matthew Young management can expect on this project? (Do not round discount factors. Round other intermediate calculations to 0 decimal places e.g. 15 and final answer to 2 decimal places, e.g. 5.25%.)

Answer 1

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

357,598=142,610/1.0x+142,610/1.0x^2+.....................+142,610/1.0x^7

Hence x=irr=35%