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Solving for Internal Rate of Return

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Internal Rate of Return
You have been offered the opportunity to purchase a franchise of Sunshine Juice Stores. You will
have to pay $258,635 for the initial investment in the store and its equipment, plus $30,000 per
year for the lease payments and the franchise fee. The franchise contract obligates you for 10 years.
Operating costs for each year will be $225,000, and the expected revenue is $298,000 a year. Your
hurdle rate is 10%. (Ignore income taxes.)
Required:
1. Does this investment yield a satisfactory rate of return?
2. What qualitative factors might be considered?

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Solution Summary

The expert calculates IRR for a project. The expert determines if the investment yield is a satisfactory rate of return. The qualitative factors that might be considered are examined.

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Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Initial Investment -258,635 0 0 0 0 0 0 0 0 0 0
Franchise ...

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