Tom is considering a business venture requiring an initial investment of $10000 and a further...
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Accounting
Tom is considering a business venture requiring an initial investment of $10000 and a further investment of $3000 after one year. The venture is expected to produce an income of $550 in two years time, $1100 in three years time, $1650 in four years time and so on, the final income $4400 in nine years time.
a) Find the internal rate of return (IRR) for this project.
b) Tom has no spare cash, but may borrow money at any time at the fixed rate of 5% per annum, with all loan being repayable in whole or in part at any time at the borrowers discretion. Malcom is considering borrowing to finance the venture described above. Explain if he should undertake the venture and, if so, calculate his profit be in nine years time at the completion of the venture?
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