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You are offered a great deal on an investment with a 3 - year payback

Economics

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You are

offered a great deal on an investment with a 3

-

year payback. You accept

the deal and invest $10,000. You are expecting an IRR of 33%. The actual cash flows

are shown below. If you MARR is normally 15% APR compounded annually.

a.

What is the payback peri

od?

b.

What is the internal rate of return?

(use Excel)

c.

What is the PW at your MARR? (Show this using Excel)

d.

Was this a good deal?

e.

How could you have avoided such an investment?

Year

Cash Flow

0

-$10,000.00

1

$1,000.00

2

$1,000.00

3

$8,000.00