Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $28,000 per year. Nancy can buy a used truck for $9,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $23,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $4,000. Nancy's MARR is 19%/year. a. What is this investment's internal rate of return? IRR- 1. % Do all calculations to 5 decimal places and round final answer to the whole number. The tolerance is +/- b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? IF IRR2 MARR, ACCEPT, OTHERWISE, REJECT
Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $28,000 per year. Nancy can buy a used truck for $9,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $23,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $4,000. Nancy's MARR is 19%/year. a. What is this investment's internal rate of return? IRR- 1. % Do all calculations to 5 decimal places and round final answer to the whole number. The tolerance is +/- b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? IF IRR2 MARR, ACCEPT, OTHERWISE, REJECT
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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Transcribed Image Text:Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $28,000 per year. Nancy can buy a
used truck for $9,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $23,000 per
year. At the end of 3 years, the used truck will have an estimated salvage value of $4,000. Nancy's MARR is 19%/year.
a. What is this investment's internal rate of return?
IRR-
1.
% Do all calculations to 5 decimal places and round final answer to the whole number. The tolerance is +/-
b. What is the decision rule for judging the attractiveness of investments based on internal rate of return?
IF IRR2 MARR, ACCEPT: OTHERWISE, REJECT.
c. Should Nancy buy the truck? Yes
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