Question

Hosier and Wogan (H&W) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have a five-year useful life, will cost $9,840.48, and will generate expected cash inflows of $2,400 per year. The second investment is expected to have a useful life of three years, will cost $6,442.74, and will generate expected cash inflows of $2,500 per year. Assume that H&W has the funds available to accept only one of the opportunities.

Required
a. Calculate the internal rate of return of each investment opportunity.
b. Based on the internal rates of return, which opportunity should H&W select?
c. Discuss other factors that H&W should consider in the investment decision.



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  • CreatedFebruary 07, 2014
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