Your friend is currently wondering whether to expand the business. He is showing you some Free Cash Flow estimates and seeking your advice. The expected Free Cash Flow numbers of the expansion are:

He has decided to rely on the Internal Rate of Return criterion to decide whether to pursue this project. He shows you that the IRR of this project is -1.78 percent, while the cost of capital is 6 percent. After walking you through his calculations, he concludes the investment is not worth pursuing. Do you agree with his assessment? Explain why. Assume that both the IRR number and the cost of capital are correct.

Year 2008 2009 2010 2011 2012 Cash flow (179,900) 142,333 135,000 149,999 (245,000) Discount factor 1.000 0.943 0.890 0.840 0.792 Discount factor 1 (1+r)