Perez and Soto (P&S) is a partnership that owns a small company. It is considering two alternative
Question:
Perez and Soto (P&S) 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 $7,001.31, and will generate expected cash inflows of $1,800 per year. The second investment is expected to have a useful life of three years, will cost $4,662.85, and will generate expected cash inflows of $1,875 per year. Assume that P&S 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 P&S select?
c. Discuss other factors that P&S should consider in the investment decision.
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
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