Lone Cedar Custom Farming is analyzing a possible investment. The investment is to expand into the fertilizer application business by purchasing a new deep tillage applicator system. They will need to purchase both a new tractor and the tillage equipment. The cost of the tractor is $475,000 and the tillage equipment is $215,000. They have estimated that their average net after tax cash flows per acre to be $22.50. Lone Cedar has estimated that they can do the following acres per year:

Year 1: 3,500

Year 2: 3,700

Year 3: 3,800

Year 4: 4,000

Year 5: 4,500

It is expected that the tractor and applicator will have an after tax terminal value of $325,000 after year 5.

Lone Cedar Custom Farming has a required after tax return on capital is 13.50%. Ignore depreciation and inflation changes for this question. What is the IRR?

Answer rating: 100% (QA)

The Internal Rate of Return IRR is a measure of the profitability of an investment and can ... View the full answer