You are looking to buy an engine repair business. After doing some analysis, you figure that this opportunity presents the following cash flows: Up-front cost = $7,000,000 Yearly cash flows (growing at 2% per year forever) = $500,000 Your opportunity cost of capital for this investment is 9%.

a. What are the NPV and IRR?

b. Should you buy it?

New Business Discount rate Growth rate NPV IRR Cash flows: Start Year 1 Year 2 Year 3 Year 4 Year 5 and on