Question
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
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 $6,000,000 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 | $1,170,000 | |
Year 2 | $1,820,000 | |
Year 3 | $2,470,000 | |
Year 4 | $1,920,000 | |
Year 5 | $1,470,000 |
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?
No, since the hurdle rate exceeds the internal rate of return.
Yes, since the internal rate of return exceeds the hurdle rate.
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