Considering the installation of an irrigation system

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After a long drought, the manager of Long Branch Farm is considering the installation of an irrigation system which will cost $100,000. It is estimated that the irrigation system will increase revenues by $20,500 annually, although operating expenses other than depreciation will also increase by $5,000. The system will be depreciated using MACRS over its depreciable life (5 years) to a zero salvage value. If the tax rate on ordinary income is 40 percent, what is the project's IRR? (MACRS DEPRECIATION SCHEDULE FOR A 5-YEAR PROJECT = 20%, 32%, 19%, 12%, 11%, 6%). Assume that the project life and the depreciable life are the same.

Reference no: EM13878021

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