Question
Bernard has been approached about a hotel investment proposal by a young entrepreneur named Winston. The young man seems to have done his homework and
Bernard has been approached about a hotel investment proposal by a young entrepreneur named Winston. The young man seems to have done his homework and presents Bernard with a five-year pro forma showing cash flows of $128,000, $138,900, $141,250, $142,870 and $146,780 respectively. Bernard knows he can earn an 8% return if he puts his money in a mutual fund. Winston is asking for $500,000.
1. What is the internal rater of return of this project ?
2. Should Bernard invest in this project ?
3. If you assume 8% as the cost of capital, compute net present value.
Shows formula please.
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