Suppose Keynes, Inc is considering buying a machine that will generate revenues of $6 million annually for two years and the $2 million in the third year. After three years the machine is worthless. If Keynes, Inc buys the machine, it must make a deposit of $ 2 million today and pay a further $11 million two years from now. Keynes, Inc has a minimum acceptable rate of return policy on investments set at 5%.

a. Using an Excel function, find the breakeven interest rate.

b. Using the project balances, show that this is a mixed investment.

c. Write formulas for the project balances to correctly reflect that this is a mixed investment. Note make cell B1 the location of the (as yet unknown) True IRR.

d. Use the Excel Goal Seek function (located in Data | WhatIf Analysis) to find the True IRR.

e. Should Keynes, Inc buy the machine?