Internal Rate of Return Analysis. Heston Farming Company would like to purchase a harvesting machine for $100,000. The machine is expected to have a life of 4 years, and a salvage value of $20,000. Annual maintenance costs will total $28,000. Annual savings are predicted to be $60,000. The company’s required rate of return is 11 percent (this is the same data as the previous exercise).
Required:
Use trial and error to approximate the internal rate of return for this investment proposal.
Should the company purchase the harvesting machine? Explain.