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Question 2 An entrepreneur has to decide whether to invest in a project or not. He is provided with the following information: The cost of
Question 2 An entrepreneur has to decide whether to invest in a project or not. He is provided with the following information: The cost of the capital expenditure involved is $40000 He will have to spend $7500 on net working capital that will be returned to him at the end of the project He will depreciate his capital expenditure using a straight line method over the project life. The duration of the project is 4 years. Tax rate of the project is 20% His accountant has forecast a revenue of $18000 annually His annual expenses are given in the table below: Supplies expense $800 Salary expenses $1400 Utilities $ 650 Rental expenses $720 At the end of the project he will sell the equipment purchased initially (Capex] at 7000 The salvage value of capex is $5000 REQUIRED 1. Calculate the Internal rate of return (IRR] 2. If the discount rate of the project is 9%, should he accept the project
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