Question

For each of the following problems consider an investment in a subsidiary for a corporation  The purchase of the subsidiary has an anticipated life of 20 years, and should bring your company additional profit of $50,000 each year for the 20 years. Additionally, the subsidiary should be sold for $225,000 at the end of the 20 year life; however, the subsidiary costs $30,000 in anticipated legal fees in the first year, and it must have advertising campaigns that cost of $70,000 at the end of yearseven, and fourteen. Your company’s hurdle rate or MARR is 12%. It will cost $300,000 to purchase this subsidiary from the owner. To start, draw the cash flow diagram.

Find the Internal Rate of Return. Also, find the External Rate of Return and the Payback period

Answer 1