You are thinking of starting an energy drink business that requires an initial investment of $20,000...
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You are thinking of starting an energy drink business that requires an initial investment of $20,000 and a major replacement of equipment after 9 years amounting to $9,000. From competitive experience, you expect to have a net loss of $3,000 the first year, a net profit of $3,000 the second year, and, for the remaining years of the first 14 years of operations, net returns of $6,000 per year. After 14 years, the net returns will gradually decline and will be zero at the end of 23 years (assume returns of $2,000 per year for that period). After 23 years, your lease will expire. The salvage value of equipment at that time is expected to be just sufficient to cover the cost of closing the business. Calculate the internal rate of return (IRR). Use technology to solve the problem. The internal rate of return is %. (Round to the nearest tenth as needed.) You are thinking of starting an energy drink business that requires an initial investment of $20,000 and a major replacement of equipment after 9 years amounting to $9,000. From competitive experience, you expect to have a net loss of $3,000 the first year, a net profit of $3,000 the second year, and, for the remaining years of the first 14 years of operations, net returns of $6,000 per year. After 14 years, the net returns will gradually decline and will be zero at the end of 23 years (assume returns of $2,000 per year for that period). After 23 years, your lease will expire. The salvage value of equipment at that time is expected to be just sufficient to cover the cost of closing the business. Calculate the internal rate of return (IRR). Use technology to solve the problem. The internal rate of return is %. (Round to the nearest tenth as needed.)
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