Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

Assume the required return is 17%. What is the project's IRR? Should it be accepted?
A) 12.2%; yes
B) 12.2%; no
C) 16.3%; yes
D) 16.3%; no
E) 17.0%; indifferent

Question

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

Assume the required return is 17%. What is the project's IRR? Should it be accepted?

Assume the required return is 17%. What is the project's IRR? Should it be accepted?
A) 12.2%; yes
B) 12.2%; no
C) 16.3%; yes
D) 16.3%; no
E) 17.0%; indifferent

Quizplus · Accepted Answer

The project's IRR is lower than the required return of 17%, indicating it should not be accepted.

Bill Plans to Open a Do-It-Yourself Dog Bathing Center in a Storefront