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Denton Music is considering investing $825,000 in private lesson studios that will have no residual value....

Denton Music is considering investing $825,000 in private lesson studios that will have no residual value. The studios are expected to result in annual net cash inflows of $120,000 per year for the next ten years. Assume that Denton Music uses an 8%hurdle rate. What is the approximate internal rate of return? (IRR) of the studio? investment?

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Answer #1
Annual Inflows 120000
Annuity factor for 10 yrs at 7.50% 6.864
Present value of Inflows 823680
Less: Initial Investment 825000
Net present value -1320
IRR of the projejct is 7.50%
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