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core: 0 of 2 pts 7-2 (book/static) 7of 10 (3 complete) HW Score: 30%, 6 of 20 pts E Question Help ou are considering investing in a start up company. The founder asked you for $200,000 today and you expect to get $1,000,000 in 9 years Given the iskiness of the investment opportunity, your cost of capital is 20%. What is the NPV of the investment opportunity? Should you undertake the investment pportunity? Calculate the IRR and use it to determine the maximurn deviation allowable in the cost of capital estimate to leave the decision unchanged hat is the NPV of the investment opportunity? he NPV of the investment is s (Round to the nearest dolar)
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of investment today (Present Cost value) -S200,000 Benefit from investment in 9 years S1,000,000 Term-9 Years Cost of capitalComputation of IRR IRR is a rate of return at where NPV is zero... Ifcost ofcapital, RR-18% NPV-$1,000,000 * PVIF(18% , 9)-$200,000 - $1,000,000 0.2255 - S200,000 S25,500 At 20% , NPV--$6,200 At 18% , NPV $25,500 Due to decrease in cost of capital of 2% , increase in NPV- $25,500-(-$6,200)-$31,700 To get change in NPV of$6.200, required rate = 2% * $6,200/S31.700 = 0.391 167 19% = 0.39% (Rounded) Therefore, IRR-20%-0.39%-19.61 % (Approximately) Ans : IRR-19.61% Maximum deviation allowable in cost of capital-20%-19.61%-0.39 %

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