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Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $1,800,000 and she had to make investments of $800,000 for the first 2 years to set up her showroom. The franchise generated $975,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture in her showroom for $110,000. a. What is the Internal Rate of Return (IRR)? % Round to two decimal places b. Should she have proceeded with this plan if her cost of capital was 20%?

Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $1,800,000 and she had to make investments of $800,000 for the first 2 years to set up her showroom. The franchise generated $975,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture in her showroom for $110,000. a. What is the Internal Rate of Return (IRR)? % Round to two decimal places b. Should she have proceeded with this plan if her cost of capital was 20%?

Essentials Of Investments
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
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Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $1,800,000 and she had to make investments of $800,000 for the first 2 years to set up her showroom. The franchise generated $975,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture in her showroom for $110,000. Question 9 of 9 a. What is the Internal Rate of Return (IRR)? % Round to two decimal places b. Should she have proceeded with this plan if her cost of capital was 20%? (click to select) (click to select) Yes No
Transcribed Image Text:Shannon purchased a franchise agreement to distribute electronic gadgets for 7 years. The agreement cost $1,800,000 and she had to make investments of $800,000 for the first 2 years to set up her showroom. The franchise generated $975,000 in profits each year from the 1st year to 7 years afterwards. At the end of year 7, she sold the furniture in her showroom for $110,000. Question 9 of 9 a. What is the Internal Rate of Return (IRR)? % Round to two decimal places b. Should she have proceeded with this plan if her cost of capital was 20%? (click to select) (click to select) Yes No
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