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

Pharoah, Inc., a resort management company, is refurbishing one of its hotels at a cost of $4,668,217. Management expects that this will lead to additional cash flows of $1,075,000 for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Pharoah go ahead with this project? (Round answer to 2 decimal places, e.g. 5.25%.)

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Answer #1
Investment cost 4668217
Divide by Additional cash flows 1075000
PV factor for Internal Rate of Return 4.342527
The PV factor 4.342527 for 6 years is closest to 10.10%
(1-(1.101)^-6)/0.101 = 4.342527
IRR of this project = 10.10%
The project should not be accepted as IRR is less than 12%
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