The prevailing interest rate is 5% over the first year and 10% over the second year. That
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The prevailing interest rate is 5% over the first year and 10% over the second year. That is, over 2 years, your interest rate is (1 + 5%) . (1 +
10%) − 1 = 15.5%. Your project costs $1,000 and will pay $600 in the first year and $500 in the second year. What does the IRR rule recommend?What does the NPV rule recommend?
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