Question

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.

Answer 1

		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%