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Velma and Keota (V&K) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have
Velma and Keota (V&K) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have a three-year useful life, will cost $7,492.75, and will generate expected cash inflows of $2,700 per year. The second investment is expected to have a useful life of three years, will cost $7,211.87, and will generate expected cash inflows of $2,900 per year. Assume that V&K has the funds available to accept only one of the opportunities. (PV of $1 and PVA of $1)
- Calculate the internal rate of return of each investment opportunity. (Do not round intermediate calculations.)
- Based on the internal rates of return, which opportunity should V&K select?
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