Ask Question
28 September, 18:53

You are considering an investment in a clothes distributer. The company needs $ 110 comma 000 today and expects to repay you $ 121 comma 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 17 %. What does the IRR rule say about whether you should invest?

+4
Answers (1)
  1. 28 September, 19:45
    0
    The IRR of this investment opportunity is 10%

    The IRR rule says that you should not invest

    Explanation:

    To calculate the IRR of this investment opportunity we shall calculate the following:

    Let the IRR be x.

    Now, Present Value of Cash Outflows=Present Value of Cash Inflows

    110,000 = 121,000 / (1.0x)

    x = 10%

    Hence, the IRR of this investment opportunity is 10%

    Cost of Capital = 17%

    The IRR rule says that one must not accept. This is because the IRR is lower than the cost of capital.

    Hence you should not invest
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “You are considering an investment in a clothes distributer. The company needs $ 110 comma 000 today and expects to repay you $ 121 comma ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers