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Carla Vista, Inc., a resort management company, is refurbishing one of its hotels at a cost...

Carla Vista, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7,332,435. Management expects that this will lead to additional cash flows of $1,690,000 for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Carla Vista go ahead with this project? (Round answer to 2 decimal places, e.g. 5.25%.)

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Answer #1

IRR is the rate at which NPV = 0,

-- 7,332, 435 = 1,690, 000/(1 + IRR)”

Using Trial and Error method,

IRR = 10.13%

Cost of Capital = 12.00%

As cost of Capital > IRR, project should not be accepted

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