Question
Ring Ring... your good friend, Mo Saleh (MS), is calling you! MS: Hello friend! I have a strategic project to invest, and I want to
Ring Ring... your good friend, Mo Saleh (MS), is calling you!
MS: Hello friend! I have a strategic project to invest, and I want to know if I should go ahead with it or not.
You: Oh nice. Tell me more about your project. MS: Operating Cash Flow in Year 1: 130,000, Year 2: 130,000, Year 3: 130,000.
I need to buy a machine in the beginning, and I can sell it for 50,000 at the end of
useful life in year 3. You: Oh ok! What rate of return are you expecting from this project? MS: It is 11%. You: What else do you know about this project?
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If you know the IRR of the project is 10.5%, what would be the initial investment MS would need to make in the beginning?
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Should MS invest in this project? Why or why not? Please advise MS.
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MS called you again and said, the project would pay back in less than 3 years, and it is
a good deal to invest. What will you say to MS?
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