question archive b) Your friend is thinking about starting her own business in this year, and comes up with two proposals: NPV IRR Payback Cosmetics stores $480,000 25% 2
b) Your friend is thinking about starting her own business in this year, and comes up with two proposals: NPV IRR Payback Cosmetics stores $480,000 25% 2
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b) Your friend is thinking about starting her own business in this year, and comes up with two proposals:
|
|
NPV |
IRR |
Payback |
|
Cosmetics stores |
$480,000 |
25% |
2.3 years |
|
Café |
$760,000 |
19% |
5.5 years |
Based on the current economic situation and the above figures, which one would you suggest?
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Cosmetic stores proposal should be invested in.
Step-by-step explanation
Suggestion of the project proposal that should be invested in based on the current economic situation:
Cosmetic stores project should be invested in. Reason being that; the proposal has the higher Internal Rate of Return (I.R.R) and the higher the I.R.R of a project the higher the suitability of undertaking the project. And also projects that takes the firm a shorter pay back period should be invested in which is evident in cosmetic stores proposal.
