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What factors should be considered before making an investment in a company, and how does the expected internal rate of return impact the decision-making process?

A company should make this investment if the optimization is operational, necessary for development, and is not highly risky. These calculations do not take into account depreciation or associated costs associated with this asset: it is expected that all of them will be covered in the amount of £8,000 per year.

On the other hand, real estate investments are among the most reliable on the market and provide some guarantees, even if it is risky. In any case, it is necessary to apply only if there is a growth rate in the company’s revenue and the need for its development.

The expected Internal Rate of Return will be obtained if the Net Present Value (NPV) is zero. To do this, the cash flow is calculated for each year, and as a result, approximately 10.5% will be obtained, which is considered a relatively risky investment since the most reliable ones are close to 20%. Accordingly, this information only confirms the point of view set above.

For the same period, another available investment of £100,000 has an IRR of -11%, plus this figure will come out only by the 15th year of acquisition. NPV at the cost of capital of 7% would have correspondingly decreased and would have given corresponding results only by the 19th year of payments, which is an extremely long period in the life cycle of companies.

At the same time, accordingly, if the flow did not change until the fourth year, then the corresponding results would shift to 22 years, which is also an incredibly long-term investment. It should only be invoked if the organization’s plans go much further in time than the expected payback.

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Academic.Tips. 2023. "What factors should be considered before making an investment in a company, and how does the expected internal rate of return impact the decision-making process?" May 30, 2023. https://academic.tips/question/what-factors-should-be-considered-before-making-an-investment-in-a-company-and-how-does-the-expected-internal-rate-of-return-impact-the-decision-making-process/.

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"What factors should be considered before making an investment in a company, and how does the expected internal rate of return impact the decision-making process?" Academic.Tips, 30 May 2023, academic.tips/question/what-factors-should-be-considered-before-making-an-investment-in-a-company-and-how-does-the-expected-internal-rate-of-return-impact-the-decision-making-process/.

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