The IRR is not provided, and the AARR based on net initial investment and average investment are also missing. Additionally, the reason for reluctance to base the purchase decision on DCF methods will be explained.
The required calculations for IRR, AARR based on net initial investment, and AARR based on average investment are not provided in the question. Without the specific data and calculations, it is not possible to determine the exact values for these metrics.
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However, I can explain the concept of IRR, AARR based on net initial investment, and AARR based on average investment. The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of an investment equal to zero. It represents the rate at which the project is expected to generate a return.
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The Average Annual Rate of Return (AARR) based on net initial investment is calculated by dividing the total net present value by the initial investment and expressing it as a percentage. It measures the average annual return generated by the investment relative to the initial investment.
The AARR based on average investment is calculated by dividing the total net present value by the average investment over the project’s life and expressing it as a percentage. It considers the average investment made over the project’s duration.
When it comes to being reluctant to base the purchase decision on DCF methods, there can be several reasons. Some common concerns include uncertainty in future cash flows, difficulty in accurately estimating discount rates, limitations of DCF models in capturing certain factors like market dynamics or non-financial benefits, and reliance on assumptions that may change over time. Additionally, DCF methods may not consider qualitative factors or external factors that can impact the investment’s success. Therefore, decision-makers may feel hesitant to solely rely on DCF methods and may consider other evaluation criteria alongside DCF analysis to make an informed purchase decision.
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(Click the icon to view the present value of $1 factors.) (Click the icon to view the present value annuity of $1 factors.) The NPV is S The NPV is $ Requirement 2. Calculate IRR. (Round your answer to two decimal places.) The IRR is %. Requirement 3. Calculate AARR based on net initial investment. (Round your answer to two decimal places.) The AARR based on net initial investment is %. Requirement 4. Calculate AARR based on average investment. (Round your answer to two decimal places.) The AARR based on average investment is %. Requirement 5. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods? Choose the correct answer below.
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