OLA#11.3 Mitchell purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $2,200,000 and he had to make investments of $875,000 for the first 2 years to set up...

Mitchell purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $2,200,000 and he had to make investments of $875,000 for the first 2 years to set up his showroom. The franchise generated $1,025,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, he sold the furniture in his showroom for $120,000.

a. What is the Internal Rate of Return (IRR)?

b. Should he have proceeded with this plan if his cost of capital was 18%?