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Tiffany purchased a franchise agreement to distribute electronic gadgets for 9 years. The agreement cost $1,600,000 and he had to make investments of $850,000 for
Tiffany purchased a franchise agreement to distribute electronic gadgets for 9 years. The agreement cost $1,600,000 and he had to make investments of $850,000 for the first 2 years to set up his showroom. The franchise generated $1,000,000 in profits each year from the 1st year to 9 years afterwards. At the end of year 9, he sold the furniture in his showroom for $85,000.
a. What is the Internal Rate of Return (IRR)?
b. Should he have proceeded with this plan if his cost of capital was 17%?
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