1.) Continuing with the same project analysis, recall that Organic Farms is considering an investment in...

1.) Continuing with the same project analysis, recall that Organic Farms is considering an investment in a new irrigation system. The firm's cost of capital, appropriate for this project, is 8.00% per year. The incremental free cash flows for the irrigation project are as follows:

Year	Free Cash Flows
0	-$65,000
1	20,300
2	20,300
3	20,300
4	20,300

Compute the IRR for the project.

Round your answer to the nearest hundredth of a percent. For example, enter 7% as 7.00 or 6.625% as 6.63.

2.) Please identify the formula used for the previous question.

Expert Solution

		NPV@8%		NPV@10%
Year	Cash flow	PV factor	PV-Cash flow	PV Project B	PV-Cash flow
0	(65,000)	1.000	(65,000)	1.000	(65,000)
1	20,300	0.926	18,796	0.909	18,455
2	20,300	0.857	17,404	0.826	16,777
3	20,300	0.794	16,115	0.751	15,252
4	20,300	0.735	14,921	0.683	13,865

		NPV	2,236		(652)

	IRR	=Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV)
		=8%+2%*(2236/(2236+652)
		9.55%

jeff jeffy answered 2 years ago

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