ANSWER THIS QUESTION:

Internal Rate of Return Analysis. Heston Farming Company would like to purchase a harvesting machine for $100,000. The machine is expected to have a life of 4 years, and a salvage value of $20,000. Annual maintenance costs will total $28,000. Annual savings are predicted to be $60,000. The companys required rate of return is 11 percent (this is the same data as the previous exercise).

Required:

Use trial and error to approximate the internal rate of return for this investment proposal.

Should the company purchase the harvesting machine? Explain.

USING THE FOLLOWING TEMPLATE:

i. Internal Rate of Return Analysis a. 15% 17% Cash Flow Present Present Item Description Purchase price (today) Annual maintenance costs In (Out)FactorValue ForValue (years 1-4) Annual savings (years 1-4) Salvage value (end of year 4) Net present value S 2,796 * Because this is not an annuity, use Figure 8.9 in the Appendix **Because this is an annuity, use Figure 8.10 in the Appendix b