Question

Kermit plans to open a boutique. The initial investment is $10,000. He has to spend $1,500 in annual operations and maintenance. The boutique generates $3,000 in revenues every year. Kermit uses a 10 year planning horizon and a MARR of 12%. The correctly calculated Rate of Return for this project is ________________%.

Answer 1

Year Initial Annual Maintenance Annual Revenue Total Cash Flow

0 -$10,000 -$10,000

1 -$1,500 $3,000 $1,500

2 -$1,500 $3,000 $1,500

3 -$1,500 $3,000 $1,500

4 -$1,500 $3,000 $1,500

5 -$1,500 $3,000 $1,500

6 -$1,500 $3,000 $1,500

7 -$1,500 $3,000 $1,500

8 -$1,500 $3,000 $1,500

9 -$1,500 $3,000 $1,500

10 -$1,500 $3,000 $1,500

Internal Rate of Return 8.1442% [IRR() in excel]

The rate of return is 8.1442 which is less than MARR of 12% investment is not worth it

Answer 2

Answer:

8.14

Explanation:

The Rate of Return is 8.14 from my calculations which you can find in the attached file.

Now since the Rate of return is 8.14. Which is less than MARR of 12%, it shows that investment is not good.