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%

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%) =

                 =

                 =

On taking, i = 10%

⇒ PW(10%) =

                  =

                  =

By interpolation, we get

⇒

⇒  

⇒  

i.e.,

⇒  

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