An investment is expected to produce the following annual year-end cash flows:

year 1: $5,000 year 4: $5,000

year 2: $1,000 year 5: $6,000

year 3: $0 year 6: $863.65

The investment will cost $13,000 today.

a.  Will this investment be profitable?

b.  What will be the IRR  ( compounded annually ) on this investment?

c.  Prove  your answer in ( b ) by showing how much of each year’s cash flow is recovery of  the

 $13,000 investment and how much of the cash flow is return on  investment.