The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 3,000 euros; year 2, 5,000 euros. The overhaul will cost 6,664 euros. (The euro is used in most European markets.)
Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 8 percent discount rate is used, but the NPV is negative if a 16 percent rate is used.)
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