Erica purchased a franchise agreement to distribute electronic gadgets for 6 years. The agreement cost $2,000,000 and
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Erica purchased a franchise agreement to distribute electronic gadgets for 6 years. The agreement cost $2,000,000 and he had to make investments of $825,000 for the first 2 years to set up his showroom. The franchise generated $1,050,000 in profits each year from the 1st year to 6 years afterwards. At the end of year 6, he sold the furniture in his showroom for $80,000.
a. What is the Internal Rate of Return (IRR)?
b. Should he have proceeded with this plan if his cost of capital was 17%?
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