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Suppose a project requires an initial cash outflow of $34,900. The project will last for four years with the annual cash flows given below. The
Suppose a project requires an initial cash outflow of $34,900. The project will last for four years with the annual cash flows given below. The required rate of return is 12%. Year Cash Flows $12,500 $19,700 0 $10,400 Now suppose another project's future annual cash flows are given below with an initial cash outflow $14,900.00). The required rate of return is 12%. Using a graph to explain why you cannot use IRR for capital budgeting in this case. (You do not need to compute anything here.) Year 1 Cash Flow $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 -$19,700 -$20,000 -$20,000 -$20,000
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