Question
You are considering investing in a start up company. The founder asked you for $220,000 today and you expect to get $1,050,000 in 14 years.
You are considering investing in a start up company. The founder asked you for $220,000 today and you expect to get $1,050,000 in 14 years. Given the riskiness of the investment opportunity, your cost of capital is 30% . What is the NPV of the investment opportunity? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
What is the NPV of the investment opportunity?
The NPV of the investment is
$enter your response here.
(Round to the nearest dollar.)
Part 2
Should you undertake the investment opportunity?
Since the NPV is
negative
positive
, you should
not take
take
the deal! (Select from the drop-down menus.)
Part 3
Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
The IRR is
enter your response here%.
(Round to two decimal places.)
Part 4
The maximum deviation allowable in the cost of capital is
enter your response here%.
(Round to two decimal places.)
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