P7-8 (similar to) Question Help You are considering an investment in a clothes d

ID: 2791438 • Letter: P

Question

P7-8 (similar to)

Question Help

You are considering an investment in a clothes distributer. The company needs

$106,000

today and expects to repay you

$125,000

in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is

14%.

What does the IRR rule say about whether you should invest?

What is the IRR of this investment opportunity?

The IRR of this investment opportunity is

nothing%.

(Round to one decimal place.)

P7-8 (similar to)

Question Help

IRR can be found when Present Value of Cash Inflows equals Cash outflows

Present Value of Cash Inflows = Cash Outflows

125000/ (1 + r ) = 106000

(1 + r ) = 125000/106000

(1 + r) = 1.1792

r = 17.92%

What does the IRR rule say about whether you should invest? Ans-YES Since Actual Return is more than IRR

What is the IRR of this investment opportunity?Ans-17.9%

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