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# Calculating IRR with MACRS for Long Branch Farm

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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 depreciate life (5 years) to a zero salvage value. If the tax rate on ordinary income is 40 percent, what is the project's IRR?

#### Solution Preview

-1.32
See worksheet to see how it was computed.

MACRS Depreciable Annual
Year Percent Basis Depreciation
1 0.2 \$100,000 \$20,000
2 0.32 100,000 \$32,000
3 0.19 100,000 \$19,000
4 0.12 100,000 \$12,000
5 0.11 100,000 \$11,000
6 0.06 100,000 \$6,000
\$100,000 ...

#### Solution Summary

This solution provides an example of how to calculate the internal rate of return (IRR) with MACRS for a given business. The solution is formatted in Excel, and displays how to use the functions of the program.

\$2.49