Determine the internal rate of return for the proposed sale.

The internal rate of return (IRR) for the proposed sale can be calculated using the following formula: ((Present Value of Cash Flows – Initial Investment)/Initial Investment)*100. The Present Value of Cash Flows is $40 million since this is the expected sales in the upcoming fiscal year, and the Initial Investment is $50 million since this is what it would cost to purchase the boat division from Colton Industries. Plugging these figures into our equation we get: (($40 million – $50 million)/$50 million)*100 = -20%. Therefore, the Internal Rate of Return for this proposed sale is -20%.

Given that Colton’s opportunity cost of capital is 10%, and its marginal tax rate 30%, it can be concluded that selling the boat division is not a good idea as its IRR (-20%) falls below both these figures. This means that by agreeing to sell, Colton will actually incur an economic loss rather than benefit. Additionally, due to competition from foreign manufacturers located in Paraguay, there are no expectations for growth or improvement in performance within this sector despite any resources invested in reversing current trend which has been declining steadily annual basis four percent Thus Board Directors should reject proposal approval instead explore alternative solutions might yield positive financial rewards with less associated risks involved particular case study question addressed herein accordingly