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An entrepreneur has to decide whether to invest in a project or not. He is provided with the following information: The cost of the capital
An entrepreneur has to decide whether to invest in a project or not. He is provided with the following information: The cost of the capital expenditure involved is $40000 He will have to spend $7500 on net working capital that will be returned to him at the end of the project He will depreciate his capital expenditure using straight line method over the project life. The duration of the project is 4 years. Tax rate of the project is 20% His accountant has forecast a revenue of $18000 annually His annual expenses are given in the table below: Supplies expense $800 Salary expenses $1400 Utilities $ 650 Rental expenses $720 At the end of the project he will sell the equipment purchased initially [Capex] at 7000 The salvage value of capex is $5000 1.Calculate the Internal rate of return (IRR] 2.If the discount rate of the project is 9%, should he accept the project
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