You are deciding to start a delivery business in January 2020. The initial investment includes a small truck which costs $70,000. Other expenses were included in the expected cash flows. The truck has a useful life of 5 years and an estimated residual value at the end of the 5th year of $10,000 (the amount expected the truck can be sold). Depreciation is the only non-cash expense. The net cash flows of each year in the following 5 years are estimated as follows: $70,000 Initial investment: Net cash flow year 1: (20,000) Net cash flow year 2: 10,000 Net cash flow year 3: 20,000 Net cash flow year 4: 40,000 Net cash flow year 5: 30,000 Estimated sale of truck year 5: 10,000 Question 4: (2 marks) Is the internal rate of return higher, lower or the same as the required rate of return in this business? Why? 12% 1% 2% 3% 4% 5% 6% 8% 10% 0.990 0.962 0.952 0.943 0.926 0.980 0.971 0.909 0.893 0.961 0.925 0.907 0.890 0.980 0.943 0.857 0.826 0.797 0.889 0.864| 0.840 0.794 0.712 0.971 0.942 0.915 0.751 0.823 0.792 0.735 4 0.961 0.924 0.888 0.855 0.683 0.636 0.784 0.747 0.621 0.567 0.951 0.906 0.863 0.822 0.681 0.746 0.705 0.790 0.630 0.942 0.888 0.837 0.564 0.507 You are deciding to start a delivery business in January 2020. The initial investment includes a small truck which costs $70,000. Other expenses were included in the expected cash flows. The truck has a useful life of 5 years and an estimated residual value at the end of the 5th year of $10,000 (the amount expected the truck can be sold). Depreciation is the only non-cash expense. The net cash flows of each year in the following 5 years are estimated as follows: $70,000 Initial investment: Net cash flow year 1: (20,000) Net cash flow year 2: 10,000 Net cash flow year 3: 20,000 Net cash flow year 4: 40,000 Net cash flow year 5: 30,000 Estimated sale of truck year 5: 10,000 Question 4: (2 marks) Is the internal rate of return higher, lower or the same as the required rate of return in this business? Why? 12% 1% 2% 3% 4% 5% 6% 8% 10% 0.990 0.962 0.952 0.943 0.926 0.980 0.971 0.909 0.893 0.961 0.925 0.907 0.890 0.980 0.943 0.857 0.826 0.797 0.889 0.864| 0.840 0.794 0.712 0.971 0.942 0.915 0.751 0.823 0.792 0.735 4 0.961 0.924 0.888 0.855 0.683 0.636 0.784 0.747 0.621 0.567 0.951 0.906 0.863 0.822 0.681 0.746 0.705 0.790 0.630 0.942 0.888 0.837 0.564 0.507