Palermo Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase of an oven that will cost $50,000, including installation. The oven is expected to last five years, have a $5,000 residual value, and will be depreciated using the straight-line method. Cash flows associated with the delivery business are as follows:
In addition to the above, there are tax consequences related to the new business, and the company's tax rate is 40 percent.
Required:
Calculate the internal rate of return for the delivery business. Should Palermo Pizzeria invest in the delivery business if the required rate of return is 10 percent?