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expected to cost $ 9 6 , 0 0 0 per year in perpetuity. Assume all profits and expenses occur at the end of the
expected to cost $ per year in perpetuity. Assume all profits and expenses occur at the end of the year.
a What is the NPV of this investment if the cost of capital is Should the firm undertake the project? Repeat the analysis for discount rates of and respectively.
b What is the IRR of this investment opportunity?
c What does the IRR rule indicate about this investment?
a What is the NPV of this investment if the cost of capital is Should the firm undertake the project? Repeat the analysis for discount rates of and respectively.
If the cost of capital is the NPV will be $Round to the nearest dollar.
Should the firm undertake the project? Select the best choice below.
A No because the NPV is not greater than the initial costs
B No because the NPV is less than zero
C Yes, because the NPV is equal to or greater than zero
D There is not enough information to answer this question.
When the NPV will be $Round to the nearest dollar.
When the NPV will be $Round to the nearest dollar.
b What is the IRR of this investment opportunity? Select all the choices that apply.
A There is at least one IRR between and
B There is at least one IRR between and
C From the answer to a there are at least two IRRs.
D There is only one IRR between and
c What does the IRR rule indicate about this investment? Select the best choice below.
A The IRR rule says nothing in this case because there are two IRRs.
B Since at least one of the IRRs is lower than the discount rate, the IRR rule says to not take the project.
C In this case, the IRR rule says you can either take or not take the project.
D Since at least one of the IRRs is higher than the discount rate, the IRR rule says to take the project.
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