A group of farmers in Inverness is considering building an irrigation system from a water supply in some nearby mountains. They want to build a concrete reservoir with a steel pipe system. The first cost would be $240,000 with (current) annual maintenance costs of $2600. They expect the irrigation system will bring them $26,600 per year in additional (current) revenues due to better crop production. Their real dollar MARR is 2 percent, and they anticipate inflation to be 3 percent per year. Assume the reservoir will have a 20-year life. a. Using the current cash flows, find the current IRR on this project. Use linear interpolation with xy = 7% and X2 = 8% to find your answer. The current IRR of this project is percent. (Round the final answer to two decimal places as needed. Round all intermediate values to six decimal places as needed.) b. What is the current MARR? The current MARR is percent. (Round the final answer to two decimal places as needed. Round all intermediate values to six decimal places as needed.) c. Should they invest? A. No, they should not invest, as the irrigation system is an extraneous purchase. B. No, they should not invest, as the project's first cost is too high. C. No, they should not invest, as the current rate of return exceeds the MARR. D. Yes, they should invest, as the current rate return exceeds the MARR. A group of farmers in Inverness is considering building an irrigation system from a water supply in some nearby mountains. They want to build a concrete reservoir with a steel pipe system. The first cost would be $240,000 with (current) annual maintenance costs of $2600. They expect the irrigation system will bring them $26,600 per year in additional (current) revenues due to better crop production. Their real dollar MARR is 2 percent, and they anticipate inflation to be 3 percent per year. Assume the reservoir will have a 20-year life. a. Using the current cash flows, find the current IRR on this project. Use linear interpolation with xy = 7% and X2 = 8% to find your answer. The current IRR of this project is percent. (Round the final answer to two decimal places as needed. Round all intermediate values to six decimal places as needed.) b. What is the current MARR? The current MARR is percent. (Round the final answer to two decimal places as needed. Round all intermediate values to six decimal places as needed.) c. Should they invest? A. No, they should not invest, as the irrigation system is an extraneous purchase. B. No, they should not invest, as the project's first cost is too high. C. No, they should not invest, as the current rate of return exceeds the MARR. D. Yes, they should invest, as the current rate return exceeds the MARR
