Grace Kennedy has committed to investing C$5,500,000 in a project with expected cash flows of C$1,000,000 at the end of Year 1, C$1,500,000 at the end of Year 4, and C$7,000,000 at the end of Year 5.
a) Demonstrate that the internal rate of return of the investment is 13.51%.
b) State how the internal rate of return of the investment would change if Grace Kennedy’s opportunity cost of capital were to increase by 5 percentage points.