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Christine purchased a franchise agreement to distribute electronic gadgets for 10 years. The agreement cost...

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Accounting

Christine purchased a franchise agreement to distribute electronic gadgets for 10 years. The agreement cost $2,400,000 and she had to make investments of $875,000 for the first 2 years to set up her showroom. The franchise generated $1,050,000 in profits each year from the 1st year to 10 years afterwards. At the end of year 10, she sold the furniture in her showroom for $110,000.

a. What is the Internal Rate of Return (IRR)?

b. Should she have proceeded with this plan if her cost of capital was 15%?

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