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Internal Rate of Return Analysis White Mountain Mining, LLC is considering the purchase of a...

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Accounting

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 $4,000,000 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 $310,000
Year 2 $960,000
Year 3 $1,610,000
Year 4 $1,060,000
Year 5 $610,000

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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