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Please show how to find the internal rate of return using interpolation method. thank you The cost of the new harvesting machine is $450,000, with
Please show how to find the internal rate of return using interpolation method.
thank you
The cost of the new harvesting machine is $450,000, with an expected life of five years. The machine is very specialized, so it is not expected to have any appreciable salvage value. However, there will be significant labor savings involved. Initially, the new equipment will require little maintenance and repair, but, as it gets older the cost of maintenance, and repair will go up sharply. Generally, the owners and management of Healthy Vegetable feel that a 12 percent return should be expected from any new investment project before it can be undertaken. In addition, they would like a payback period of less than three years and an accounting rate of return (ARR) of 25%. The business tax rate for the company is 30%. Expected net returns before depreciation and taxes from the investments and estimated depreciation expenses are shown in the following Table. Year 2 3 4 5 Net profit before depreciation and taxes $275,000 250,000 225,000 175,000 160,000 Depreciation $90,000 90,000 90,000 90,000 90,000 What is the internal rate of return (IRR) for the investment? Calculate using interpolation methodStep by Step Solution
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