Problem:

The Titanic Shipbuilding Company has a non cancelable contract to build a small cargo vessel. Construction involves a cash outlay of $256,000 at the end of each of the next two years. At the end of the third year the company will receive payment of $640,000. The company can speed up construction by working an extra shift. In this case there will be a cash outlay of $560,000 at the end of the first year followed by a cash payment of $640,000 at the end of the second year.

Question: Use the IRR rule to calculate the (approximate) range of opportunity costs of capital at which the company should work the extra shift. Show all work.