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Question 2: Part a. You are considering selling your shares of DD and buying a property in Urbana and opening up your own donut shop
Question 2: Part a. You are considering selling your shares of DD and buying a property in Urbana and opening up your own donut shop called Dog's & Donuts (donut place with rescue dogs you can pet). You need to achieve an annual rate of return of at least 5% to keep the new location open after 5 years. Below are the details of the investment. What is the Internal Rate of the Return & will you choose to open a second location? Show your work below. Immediate cash flow: You purchase the new property for $50,000 You renovate the property, costing $30,000 t, You earn profits of $15,000 to You earn profits of $20,000 t: You earn profits of $25,000 t. You earn profits of $30,000 Calculated IRR Will you open the new location? Part b. What profit in period 4 instead of $30,000 to achieve exactly 5% internal rate of return? Hint: Similar to the in class example. (note, you can use the IRR function in this case, but understand the calculations as well if you were to do so by brute force) t4 required return (to achieve 5% IRR) Part c. Just a "Think 'Bout It": the pattern in earnings is increasing through time and if that continues, the IRR will continue to increase. Think about how you would decide if your investment horizon were longer or shorter, or if you had the option to sell the business to someone with a different investment horizon
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