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