An investment is expected to produce the following annual year-end cash flows:

Year 1	$ 5,000.00
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.

Beginning of Year	Investment	10% Interest	Cash Flow	Recovery of Capital (ROC)	End of Year (Balance)
1	$14,100.00		$5,000.00
2			1,181.00
3			0.00
4			5,520.00
5			6,340.00
6			1,544.16
		$0.00	$19,585.16	$0.00

Answer rating: 100% (QA)

To determine the profitability and IRR of the investment we can use the following steps a To determine if the investment is profitable we need to calc... View the full answer