Agdist Corporation distributes agricultural equipment. The board of directors is
ID: 2781184 • Letter: A
Question
Agdist Corporation distributes agricultural equipment. The board of directors is considering a proposal to establish a facility to manufacture an electronically controlled "intelligent" crop sprayer invented by a professor at a local university. This crop sprayer project would require an investment of $8 million in assets and would produce an annual after-tax net benefit of $2.1 million over a service life of eight years. All costs and benefits are included in these figures. When the project terminates, the net proceeds from the sale of the assets will be $1.1 million. Compute the rate of return of this project. Is this a good project at MARR= 12%? The rate of return of this project is 11%. (Round to one decimal place.)Explanation / Answer
Rate of return can be calculated using I/Y function on a calculator
Insert N = 8, PMT = 2.1, PV = -8, FV = 1.1
=> Compute I/Y = 21.3% is the rate of return of this project.