Question 1201866
he could sell the building tody for 610,000.
to keep the business runing, he would have to spend 60,000 now and will yield an annual profit of 72,000 for the next 25 years.
the discount interest rate if 6%.
all profit is assumed to occur at the end of each year.


i used excel to create the cash flow and the NPV (net present value) and the IRR (internal rate of return).


the results are shown below:


<img src = "http://theo.x10hosting.com/2023/042301.jpg">


plan A was keeping the business going.
plan B wass to sell the building (and presumably leaving the business) for $610,000.


at 6% discount rate, the results showed that keeping the business for 25 years gave a higher NPV than selling the building and getting out of the business.


the internal rate of return of plan A, by itself, was 120% over the 25 year period.


the internl rate of return of plan A minus plan B was 9.68%, rounded to 2 decimal places.


since plan A NPV was greater than plan B at 6%, it is reasonable that the internal rate of return of plan A minus plan B was greater than 6%.


if you are looking at the results of the decision, you are probably looking at the results of plan A minus plan B comparison.


NPV plan A minus plan B comparison is $250,401.64 in favor of plan A.
the internal rate of return of that decision is 9.68%, rounded to two decimal places.


plan A (keeping the business going) is the winner, as far as i can tell.