Internal Rate of Return Analysis

White Mountain Mining, LLC is considering the purchase of a new piece of machinery. The initial cost of the machine will be $6,250,000 and the machine will have a useful life of five years. The companys hurdle rate is 8%. The following cash flow projections have been made:

Year 1		$1,200,000
Year 2		$1,850,000
Year 3		$2,500,000
Year 4		$1,950,000
Year 5		$1,500,000

Calculate the internal rate of return for the machinery.

Use Excel to compute your answers.

Round answers to the nearest whole percentage (ex: 0.1854 = 19%)

Answer_____%

Should White Mountain purchase the machinery?

a. No, since the hurdle rate exceeds the internal rate of return.

b. Yes, since the internal rate of return exceeds the hurdle rate.