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Power switch Electric is faced with a capital budget of $150,000 for the coming year. It is

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Power switch Electric is faced with a capital budget of $150,000 for the coming year. It is considering six investment projects and has a cost of capital of 7%. The six projects along with their initial investments and their IRRs are listed in the following table. Using the data given, prepare an investment opportunities schedule (IOS). Which projects does the IOS suggest should be funded? Does this group of projects maximize NPV? Explain.

Project Initial investment IRR -$75,000 -40,000 10 3 -35,000 -50,000 11 -45,000 5 -20,000 1,

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Project Initial investment IRR -$75,000 -40,000 10 3 -35,000 -50,000 11 -45,000 5 -20,000 1,

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The Investment Opportunity Schedule IOS and cost of capital are sketched in the figure below The IRR ...View the full answer


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The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.

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