You have been offered a very long term investment opportunity to increase your money one hundredfold. You can invest $1000 today and expect to receive $100,000 in 40 years. Your cost of capital for...

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You have been offered a very long term investment opportunity to increase your money one hundredfold. You can invest $1000 today and expect to receive $100,000 in 40 years. Your cost of capital for this (very risky) opportunity is 25%. What does the IRR rule say about whether the investment should be undertaken? What about the NPV rule? Do they agree?





Answered Same DayDec 25, 2021

Answer To: You have been offered a very long term investment opportunity to increase your money one...

David answered on Dec 25 2021
133 Votes
IRR = (Future Value) 1/40 -1
(Present Investment)
IRR = (100000) 1/40
-1
1000
IRR = 12.2%
NPV = Present Value of cash inflows – cash Outflows
NPV = 100000 - 1000
(1.25)40
NPV = $ -986.71
Since the IRR is less than the...
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