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.
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.
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
Section: Chapter Questions
Problem 1PS
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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 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%?
Kindly add all the decimals DO NOT ROUND
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