Problem:
Newport Department Store is considering development of an e-commerce business. The company estimates that development will require an initial outlay of $1,470,000.Other cash flows will be as follows:
Year 1 ($700,000)
Year 2 $221,000
Year 3 $750,000
Year 4 $850,000
Year 5 $940,000
Required:
Assuming the company limits its analysis to five years, estimate the internal rate of return of the e-commerce business. Should the company develop the e-commerce business if the required rate of return is 12 percent?