An investment is expected to produce the following annual year-end cash flows: Year 1 $ 5,000.00 Year
Question:
An investment is expected to produce the following annual year-end cash flows:
Year 1 | $ 5,000.00 |
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Year 2 | $ 1,181.00 |
Year 3 | $ .00 |
Year 4 | $ 5,520.00 |
Year 5 | $ 6,340.00 |
Year 6 | $ 1,544.16 |
The investment will cost $14,100 today.
Required:
a. Will this investment be profitable?
b. What will be the IRR (compounded annually) on this investment?
c. Show how much of each year’s cash flow is recovery of the $14,100 investment and how much of the cash flow is return on investment. (Hint: See Exhibit 3-13 and Concept Box 3.2.)
c. Show how much of each year’s cash flow is recovery of the $14,100 investment and how much of the cash flow is return on investment. (Hint: See Exhibit 3-13 and Concept Box 3.2.)
Note: Do not round intermediate calculations and round your final answers to 2 decimal places.
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Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill