Reference no: EM132528557

Milker Corporation is considering buying View Farm, a 160-acre family-operated dairy farm located near a busy state highway in a suburban area. Over 90 percent of the farm's $300 000 annual revenue is derived from sales of unprocessed milk and homemade ice cream. Two hundredths of one percent (0.0002) of the 180 000 retail customers who each year buy milk at View Farm claim to have been poisoned by the milk. Although the farm's management believes that any poisoning is primarily caused by impurities already in the containers that customers bring to be filled, the fact that View milk is unprocessed leaves the farm particulaely vulnerable to liability. Therefore, rather than go to court, the farm has been paying an average of $300 as a settlement to each person who claims to have been poisoned by the milk.

Problem 1: For an additional $100 000, Milker can purchase equipment with the farm that will process its milk (no poisonings risk) for the next 15 years, after which the equipment will have no salvage value. Calculate the internal rate of return.