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Assume that Leo has a new venture that costs $100,000

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Assume that Leo has a new venture that costs $100,000. The company expects to have cash flows of $40,000 per year for the first four years and $50,000 in year 5. There will be no salvage value and the company’s cost of capital is 9.23%.

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If the company in the above problem uses IRR, would you accept or reject the project?

Hint: You accept a project if IRR is greater than the cost of capital.

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