Tanya Sinclair, owner of Sinclair Fine Wine, is considering investing $87,930 in a temperature-controlled wine storage room.

Question:

Tanya Sinclair, owner of Sinclair Fine Wine, is considering investing $87,930 in a temperature-controlled wine storage room. She plans to rent space to customers and expects to generate $25,000 annually (rental charges less miscellaneous expenses other than depreciation).

Required
a. Assuming Tanya wishes to evaluate the project with a five-year tine horizon, what is the of the investment? (Ignore taxes.)
b. Should Tanya make the investment if her required rate of return is 12 percent?

Internal Rate of Return
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...