Assume that Louisa carried an average balance of $1,000 from her credit card purchases over the past year. The A.P.R. on her cre
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Answer: The project should be accepted.
Explanation:
The Internal Rate of Revenue is used to evaluate projects before they are accepted. It is a rate that equates the Net Present Value of cashflows to zero.
If the IRR is higher than the Required return then the Project will be accepted because it means that NPV will be higher than zero. The reverse is true.
Given the cashflows in the question, the IRR is;
= 18.8% according to Excel.
With the IRR higher than the required return of 8%, the project should be accepted.
Answer: The cost of non-free trade credit is 23.45%
We follow these steps to arrive at the answer
We have:
Discount Rate 2%
First we find .
Adding 1 to the number above we get 1.020408163
Next we'll find the number of extra credit days after the discount period.
Next we need to raise 1.020408163 to the fraction of 365/35. We get
Finally we need to deduct 1 from the number above to get
We express the number above as a percentage to arrive at the cost of non-free trade credit.