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What is the internal rate of return of the new system

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Question - Suppose your firm is considering a new system of inventory management. The new system will cost $10 million today (year 0), but it will decrease the amount of inventory you have to keep starting immediately. More specifically, the current inventory requirement is 20% of next year's sales. The new system will reduce your inventory requirement to 10% of next year's sales forever. Suppose that the sales are 50 million in year 1, and they grow at rate 5% in perpetuity. Assuming that the tax rate is 0, what is the Internal Rate of Return of the new system?

Reference no: EM132949911

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