•Your company has the opportunity to make an investment that promises to pay $24
ID: 2765642 • Letter: #
Question
•Your company has the opportunity to make an investment that promises to pay $24,000 after 6 years. If your company has a required return of 8.5% on this type of investment, what is the maximum amount that the company should pay for the investment? Explain your answer. •In the previous scenario, assume that your company negotiated a deal where it would pay $12,000 for the investment and receive a payment of $24,000 at the end of 7 years. What is the IRR on this investment? Should the company make the investment? Explain your answer.
Explanation / Answer
PV=24000/1.085^6)=14710.68 is the amount which can be invested to earn 8.5% Annual required return
IRR (r)
24000/(1+r)^7=12000
IRR=r=10.41% since the requied return is 8.5% it makes sense to make the investment
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