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Oak Enterprises accepts projects earning more than the firm's
14%
cost of capital. Oak is currently considering a
10-year
project that provides annual cash inflows of
$20,000
and requires an initial investment of
$135,700.
a.Determine the IRR of this
project.
Is it acceptable?
b.Assuming that the cash inflows continue to be
$20,000
per year, how many additional years would the flows have to continue to make the project acceptable (that is, to make it have an IRR of
14%)?
c.With the given life, an initial investment of
$135,700,
and cost of capital of
14%,
what is the minimum annual cash inflow the investment would have to provide in order for this project to make sense for Oak's shareholders?
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