Exercise 9-10

Tanya Sinclair, owner of Sinclair Fine Wine, is considering investing $198,400 in a temperature-controlled wine storage room. She plans to rent space to customers and expects to generate $47,688 annually (rental charges less miscellaneous expenses other than depreciation).

Assuming Tanya wishes to evaluate the project with a 7-year time horizon, what is the internal rate of return of the investment? (Ignore taxes.) (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 1 decimal place, e.g. 12.5%.)

Internal rate of return _________________%

Should Tanya make the investment if her required rate of return is 13.0 percent?

Tanya (should/should not) make the investment.