You have been offered a very long term investment opportunity to increase your money one...

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You have been offered a very long term investment opportunity to increase your money one hundredfold. You can invest $1000 today and expect to receive $100,000 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?

David · Accepted Answer

IRR =  (Future Value) 1/40          -1 
           (Present Investment) 
IRR =    (100000) 1/40       -1 
                 1000 
IRR = 12.2%
NPV = Present Value of cash inflows – cash Outflows 
NPV = 100000   - 1000 
            (1.25)40  
NPV = $ -986.

You have been offered a very long term investment opportunity to increase your money one hundredfold. You can invest $1000 today and expect to receive $100,000 in 40 years. Your cost of capital for...

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