Question

Estimates

Red velvet Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $18,250, and the project is expected toyield after-tax cash inflows of $4,000 per year for 7 years. The firm has a 10% cost of capital.

a. Determine the net present value (NPV) for the project.
b. Determine the internal rate of return (IRR) for the project.
c. Would you recommend that the firm accept or reject the project? Explain your answer.

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