Buddington Ltd is evaluating the purchase of a new machine and has the following information:

(a) Calculate the internal rate of return of the project.

(b) Assess the sensitivity of the purchase evaluation to a change in project life.

(c) Assess the sensitivity of the purchase evaluation to a change in sales price.

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Initial investment: Residual value: Expected life: Sales volume: Sales price: Variable cost: 350 000 nil 10 years 20 000 units per year 8.50 per unit 3.50 per unit 24 875 per year Fixed costs: Cost of capital: 15 per cent