Vaughn Company has the following information about a potential capital investment: Initial investment ........$ 400,000 Annual cash

Question:

Vaughn Company has the following information about a potential capital investment:

Initial investment ........$ 400,000

Annual cash inflow ........ $ 70,000

Expected life ........ 10 years

Cost of capital ........ 11%

1. Calculate and evaluate the net present value of this project.

2. Without any calculations, explain whether the internal rate of return on this project is more or less than 11 percent.

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