Assume a company can invest in equipment that will cost $1,000,000 and is expected to generate $160,000 a year in revenue for the first three years, $140,000 for the next three years, $120,000 for the next three years, and $100,000 for the final year. The company has the capital available for the equipment and could alternatively invest it in the stock market for an expected return of 7% per year. The managers feel that buying the equipment or investing in the stock market are similar risks. What is the IRR for this investment and would the managers accept this investment? O6.54%; Yes O 6.54%; No O 7.75%; No: O 7.75%; Yes

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Subject :- Finance 

Assume a company can invest in equipment that will cost $1,000,000 and is expected to generate
$160,000 a year in revenue for the first three years, $140,000 for the next three years, $120,000 for
the next three years, and $100,000 for the final year. The company has the capital available for the
equipment and could alternatively invest it in the stock market for an expected return of 7% per
year. The managers feel that buying the equipment or investing in the stock market are similar risks.
What is the IRR for this investment and would the managers accept this investment?
O 6.54%: Yes
O 6.54%; No
O 7.75% ; No:
O 7.75%; Yes
Transcribed Image Text:Assume a company can invest in equipment that will cost $1,000,000 and is expected to generate $160,000 a year in revenue for the first three years, $140,000 for the next three years, $120,000 for the next three years, and $100,000 for the final year. The company has the capital available for the equipment and could alternatively invest it in the stock market for an expected return of 7% per year. The managers feel that buying the equipment or investing in the stock market are similar risks. What is the IRR for this investment and would the managers accept this investment? O 6.54%: Yes O 6.54%; No O 7.75% ; No: O 7.75%; Yes
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