The Chang Company is considering the purchase of a new machine to replace an obsolete one. The proposed replacement machine will perform so much more efficiently that Chang engineers estimate it will decrease cash outflows by $9000 per year. The new machine cost $40,000 delivered and installed and has an estimated economic life of 10 years. The new machine will be depreciated using the 5 Year MACRS class life. The firm's discount rate is 10% and its marginal tax rate is 35%. What is the predicted IRR of buying the new plane?

1)

86.33%

2)

14.28%

3)

18.31%

4)

15.01%