Question

Your factory has been offered a contract to produce a part for a new printer. The contract would last for three​ years, and your cash flows from the contract would be $ 4.95 million per year. Your upfront setup costs to be ready to produce the part would be $ 7.99 million. Your discount rate for this contract is 7.7 %. a. What is the​ IRR?

Answer 1

Answer: 38.77%

Explanation: the IRR is a discount rate that equates the present value of after tax cash flow to the capital amount invested.

Using the financial calculator:

Cash flow for year 0 = -7.99

Cash flow for year 1 = 4.95

Cash flow for year 2= 4.95

Cash flow for year 3= 4.95

IRR = 38.77%

I hope my answer helps.