Business: The Oklahoma Department of Transportation (ODOT) is looking at the purchase of a new technology for asphalt paving of major highways. The new machine will cost $1,000,000 and is expected to provide a net revenue of $150,000 per year for 9 years. There is no salvage value for this machine. If MARR=10% per year, what is the exact IRR for this project? A. 15.15% B. 13.68% C. 6.47% D. 2.14%

I believe the answer is B, so Shoe leather Cost...

The Oklahoma Department of Transportation (ODOT)

zacharycheyne

17.03.2022

Option C (6.47%) is the right answer.

Explanation:

The given values are:

New machine's cost,

= $1,000,000

Net revenue,

= $150,000

Time,

= 9 years

MAAR,

= 10% per year

Now,

On taking, i = 5%

⇒ PW(5%) = $-1,000,000 + 150,000(\frac{P}{A} , 5 \ percent, 9)$

= -1,000,000 + 1,066,200

= 66,200

On taking, i = 10%

⇒ PW(10%) = $-1,000,000 + 150,000(\frac{P}{A} , 10 \ percent, 9)$

= -1,000,000 + 863,85 0

= -136,150

By interpolation, we get

⇒ $i=5 \ percent + [\frac{66,220-0}{(66,200-(-136,150)} ]\times (10 \ percent - 5 \ percent)$

⇒ $=0.05 + (\frac{66,220}{202,350} )\times 0.05$

⇒ =0.0663

i.e.,

⇒ $= 6.63 \ percen t$

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