Capital Budgeting for a New Machine
A few months have now passed and Aero Plain, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows:
Year 1 $950,000
Year 2 $1,100,000
Year 3 $1,300,000
Year 4 $1,400,000
You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,500,000.
What is the project's IRR? Show your calculations.