The OC Farm is considering purchasing a used combine to harvests grain crops and to do some custom farming. The following provides information on the used combine:

Cost

$105,000

Estimated residual value

$60,842

Estimated annual cash inflow

$47,800

Estimated annual cash outflow

$38,700

Estimated useful life (in years)

6

Required rate of return

5%

At the end of the useful life, the combine will be sold for the residual value.

What is the estimated annual net cash flow?

$2,500

$9,100

$38,700

$47,800

What is the net present value?

	a.	Negative $13,410.83
	b.	Positive $13,410.83
	c.	Do not have enough information.
	d.	None of the above

What is the IRR of the investment?

	a.	1.5%
	b.	2.0%
	c.	2.8%
	d.	None of the above

Should the OC Farm purchase the combine?

	a.	Yes!
	b.	No!
	c.	Maybe!
	d.	None of the above are correct