A company is considering an investment that requires an immediate investment of $475,000 and an additional investment of $125,000 in year 3. The investment will generate annual profits of $170,000 for five years, starting from year 2. a. Calculate the IRR for this investment. b. If the cost of capital is 7.5%, should the company undertake the investment?
A company is considering an investment that requires an immediate investment of $475,000 and an additional investment of $125,000 in year 3. The investment will generate annual profits of $170,000 for five years, starting from year 2. a. Calculate the IRR for this investment. b. If the cost of capital is 7.5%, should the company undertake the investment?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 2P
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OLA #11.1
A company is considering an investment that requires an immediate investment of $475,000 and an additional investment of $125,000 in year 3. The investment will generate annual profits of $170,000 for five years, starting from year 2.
a. Calculate the IRR for this investment.
b. If the cost of capital is 7.5%, should the company undertake the investment?
Please reply using algebra in details
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