1. A company requires an initial investment of $110,000. There will be no cash flow in the first year. Starting in the second year, the project will generate an annual cash flow of 20,000 for seven years. After the last $20,000, the project is done. However, $13,000 is required to restore the environment in the year after the last $20,000. Assume the required return is 5%. What is the modified IRR of this project?
2. Lay is considering an investment costing $55,000 that has cash flows of $35,000 in Year 2, $36,000 in Year 3, and $5,000 in Year 4. Jen requires a rate of return of 8 percent and has a required discounted payback period of three years. Based on the discounted payback method should she make this investment? All things considered, do you agree with this decision? Why or why not?