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2441 CHAPTER INVESTMENT ANALYSIS 9. Explain how the timing of a stream of cash flows can affect the internal rate of return of an investment 10. Naomi has always wanted to open a cyber coffee shop and has made her cash flow pro- jections. She estimates that it will cost her $225,000 to develop the project, and the cash flows for the next six years will be $45,000, 569,000, $125,000, S185,000, $189,000, and $200,000 respectively. If her cost of capital is 9.5%, what is the not present value and internal rate of return of her project? Should she accept or reject this investment? 11. What would be the payback period for Naomi's proposal in the preceding question? If the maximum allowable time is 2.5 years, should Naomi accept this project? 12. 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, S142,870, 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. What is the internal rate of return of this project? Should Bernard Invest in this project? If you assume 8% as the cost of capital, compute not present value. 13. What would be the MIRR of Bernard's proposal in the preceding question? 14. ETHICS * Irene has a hospitality degree and has taken a few finance courses. Her friend, June, is putting together a proposal for a sports bar, to be reviewed by a banker. The NPV she calculates is negative. The IRR is also calculated to be less than June's cost of capital. Knowing that Irene understands finance and the factors that affect the NPV and IRR of an investment, June asks Irone to make things look better so the banker will give June the loan. Is there anything Irene can do to help June without being unethical in this situation? 15. EXPLORING THE WEB * Visit www.money.cnn.com. Aside from regular news and fi- nancial news, this site also offers a glossary of all financial terms and a calculator under "Financial Tools." While a business calculator and an Excel worksheet offer quick, easy, and accurate means of calculating the value of money, many sites such as CNN also offer financial tools to educate the public. Concept Check Restaurant Purchasing a POS System Nance's Restaurant, a local independent restaurant, is evaluating new point-of-sale (POS) sys- tems and must determine if a new installation is feasible. A new POS installation would include both software and hardware, with a total cost of $20,000. Nance's Restaurant is currently operating without a point-of-sale system and utilizes a chit system with carbon copy papers that allow the waitstaff to provide a copy to the kitchen and the customer while retaining a copy for accounting purposes. Management is aware that this is