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 FORMAT IN EXCEL.

2 EXERCISES (continued) 4 36. Internal Rate of Return Analysis a. 15% Present Valu Cash Flow Present 12 13 14 Purchase price (today) 15 Annual maintenancc costs 16 Item Description -In(Out)--Factor valu acto (years 1-4) 17 Annual savings (ycars 1-4) 18 Salvage value 19 (end of year 4) S 2,796 20 Net present value 21 22 Because this is not an annuity, use Figure 8.9 in the Appendix. 23** Because this is an annuity. use Figure 8.10 in the Appendix. 24 25 26 27 b