Question

You have been offered a very long-term investment opportunity to increase your money one hundredfold. You can invest $1,700 today and expect to $170,000 receive in 40 years. Your cost of capital for this (very risky) opportunity is 25% . What does the IRR rule say about whether the investment should be undertaken? What about the NPV rule? Do they agree?

The IRR of this investment is ;  (round to one decimal place. i.e. write "12.34%" as "12.3%".)

According to IRR rule, should you invest? ________   (write "yes" or "no")  

The NPV of this investment is ;   (round to two decimal place with no "$" or "," sign. i.e.  write "$12,345" as "12345.00".)

According to NPV rule, should you invest? ________   (write "yes" or "no")  

Answer 1

As per IRR rule project cannot be accepted because IRR is less than cost of capital.

As per NPV project cannot be accepted because NPV is negative.

Here both IRR rule and NPV rule agree i.e., project cannot be accepted.