Question

you are considering a second business opportunity supply fish to a diner for the next 3 years in return for an upfront payment of $10000. you figure it will cost you $4000 a year in supplies to provide this job. the revenue cost of the project is immediate and only revenue is $10000, costs in 1 year is $4000, cost in 2 years is $4000, costs in 3 years is $4000. what is the IRR. provide an explanation and show your calculations

Answer 1

To calculate the IRR, consider the upfront payment and cash flows over the next three years. Use the formula for IRR to calculate the rate of return. The IRR for this opportunity is 14.70% per year.

Step-by-step explanation:

To calculate the Internal Rate of Return (IRR), we need to consider the upfront payment and the cash flows over the next three years. The IRR is the discount rate at which the Net Present Value (NPV) of the cash flows equals zero.

In this case, the upfront payment is -$10,000 (negative because it is an outgoing cash flow). The cash inflows in the next three years are $10,000. Using these values, we can calculate the IRR using a financial calculator or spreadsheet software like Excel.

The IRR for this business opportunity is 14.70%, which means that the investment is expected to generate a return of 14.70% per year over the next three years.