Problem:
You intend to set up a mail order gift basket business in your home while you attend college. You expect the following cash flows:
Year Cash Flow
1 $5,000.00
2 $8,000.00
3 $1,200.00
4 $1,400.00
You can borrow at 11% to start this business. What is the current value of the expected cash flow stream?
Will it return a higher rate (IRR) than your borrowing costs if you must invest $10,000 today to begin the business?