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Find the IRR for the purchase of the used machine

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Question - A family operated dairy farm needs to purchase and install a filing-machine for their creamer production-line. They have two alternatives:

Purchase a used machine: First cost = $29,165; service life = 6 years; maintenance costs of $10,000 each year; and a salvage value of $0.

Purchase a new machine: First cost = $80,000; service life = 6 years; maintenance costs of $0 each year; and salvage value = $15,000.

The installation of either machine will generate additional revenues of $17,500 per year. The family uses a MARR of 10%.

a) Find the IRR for the purchase of the used machine.

b) Use 'Incremental IRR' to determine which machine is preferred?

Reference no: EM132608341

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