1. Suppose Keynes, Inc is considering buying a machine that will generate revenues of $6 million annually for two years and $2 million in the third year. After three years the machine is worthless. If Keynes, Inc buys the machine, it must make a deposit of $ 2 million today and pay a further $11 million two years from now. Keynes, Inc has a minimum acceptable rate of the return policy on investments set at 5%.

a. Using an Excel function, find the breakeven interest rate.

b. Using the project balances, show that this is a mixed investment.

c. Write formulas for the project balances to correctly reflect that this is a mixed investment. Note make cell B1 the location of the (as yet unknown) True IRR.

d. Use the Excel Goal Seek function (located in Data | WhatIf Analysis) to find the True IRR.

e. Should Keynes, Inc buy the machine? 

Answer rating: 100% (QA)

a Using an Excel function find the breakeven interest rate The breakeven interest rate can be found using the Excel XIRR function This function takes values of cash inflows and outflows and the corres... View the full answer