Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $1,800,000 and she had to make investments of $800,000 for the first 2 years to set up her showroom. The franchise generated $975,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture in her showroom for $110,000. a. What is the Internal Rate of Return (IRR)? % Round to two decimal places b. Should she have proceeded with this plan if her cost of capital was 20%?
Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $1,800,000 and she had to make investments of $800,000 for the first 2 years to set up her showroom. The franchise generated $975,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture in her showroom for $110,000. a. What is the Internal Rate of Return (IRR)? % Round to two decimal places b. Should she have proceeded with this plan if her cost of capital was 20%?
Chapter11: Long-term Assets
Section: Chapter Questions
Problem 7EB: Kenzie purchased a new 3-D printer for $450,000. Although this printer is expected to last for ten...
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Transcribed Image Text:Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years.
The agreement cost $1,800,000 and she had to make investments of $800,000 for the
first 2 years to set up her showroom. The franchise generated $975,000 in profits each
year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture
in her showroom for $110,000.
Question 9 of 9
a. What is the Internal Rate of Return (IRR)?
%
Round to two decimal places
b. Should she have proceeded with this plan if her cost of capital was 20%?
(click to select)
(click to select)
Yes
No
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