Question

In: Finance

Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each.

11.  Problem 10-08 (NPVs, IRRs, and MIRRs for Independent Projects)

NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $18,000, and that for the pulley system is $22,000. The firm's cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

YearTruckPulley
1$5,100
$7,500
25,100
7,500
35,100
7,500
45,100
7,500
55,100
7,500

Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places. Use a minus sign to enter negative values, if any.


Solutions

Expert Solution

1.
IRR of Truck=RATE(5,-5100,18000)=12.8584635264038%

IRR of Pulley=RATE(5,-7500,22000)=20.8844501497676%

Accept only pulley

2.
NPV of Truck=PV(14%,5,-5100)-18000=-491.287058821847

NPV of Pulley=PV(14%,5,-7500)-22000=3748.10726643846

Accept only pulley

3.
MIRR of Truck=MIRR({-18000;5100;5100;5100;5100;5100},14%,14%)=13.3707957084804%

MIRR of Pulley=MIRR({-22000;7500;7500;7500;7500;7500},14%,14%)=17.6438901927194%

Accept only pulley


Related Solutions

Calculate the NPV for Project A and accept or reject the project with the cash flows...
Calculate the NPV for Project A and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 7% Project A Time 0 1 2 3 4 5 Cash Flow -990 350 480 500 630 120 2) Calculate the NPV for project L and recommend whether the company should accept or reject the project. Cost of Capital is 6% Project L Time 0 1 2 3 4 5 Cash Flow -         8,600          ...
Under what circumstances will the IRR and NPV rules lead to the same decision (accept/reject)? When...
Under what circumstances will the IRR and NPV rules lead to the same decision (accept/reject)? When might they conflict? (It is important to explain your answers with details or demonstrate your understanding by applying examples.) please this answer should not be from text book.
NPV mathematically will give the correct accept-or-reject decision regardless of Whether the project experiences non-normal cash...
NPV mathematically will give the correct accept-or-reject decision regardless of Whether the project experiences non-normal cash flows or if differences in project size or timing of cash flows exist in our case." Would the IRR provides the correct accept -or-reject decision as the NPV ? If you cannot eliminate the systematic risk, how can you reduce it if you hold a portfolio of several stocks?
If these two projects are mutually exclusive, which project should the company accept based on the NPV, IRR, MIRR, payback, and discounted payback period for each project?
Considering the following projects.ProjectYear01234ACash flows-$100$35$35$35$35BCash flows-$100$60$50$40$30Project A has WACC = 6.00% while project B has WACC = 8.50%.If these two projects are mutually exclusive, which project should the company accept based on the NPV, IRR, MIRR, payback, and discounted payback period for each project?Would your decision (Your answer from part A) change if these two projects were independent?
7- Calculate net present value (NPV) for the above investment decision. Would you accept or reject this investment decision? Why?
  Motorola Mobility LLC is a company that develops mobile devices. Headquartered in Chicago, Illinois, United States, the company was formed on January 4, 2011 by the split of Motorola Inc. into two separate companies; Motorola Mobility took on the company's consumer-oriented product lines, including its mobile phone business and its cable modems and set-top boxes for digital cable and satellite television services, while Motorola Solutions retained the company's enterprise-oriented product lines. Early 2012, Google decided to purchase Motorola mobility...
What is NPV, IRR, PI, MIRR of a project with the following cash flows if the...
What is NPV, IRR, PI, MIRR of a project with the following cash flows if the discount rate is 14 percent? Year CF 0 -18,000    1 5000 2 7500 3 8400 4 2100 Also upload your excel files showing your work.
What are the pros and cons of the various capital budgeting decision methods (NPV, IRR, MIRR,...
What are the pros and cons of the various capital budgeting decision methods (NPV, IRR, MIRR, PB, DPB)? If you had to pick one method to use for all project valuation situations, which one would you pick, and why? Please explain your answer! I am trying to understand the concept.
1.      Compute the IRR for Project X and note whether the firm should accept or reject...
1.      Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent. Time: 0 1 2 3 4 5 Cash flow: ?1,000 ?75 100 100 0 2,000 A.      9 PERCENT, ACCEPT B.       9 PERCENT, REJECT C.       16.61 PERCENT, ACCEPT D.      16.61 PERCENT, REJECT
14. (Toolkit – Decision Rules – PBAK, IRR, NPV) Calculating NPV & IRR: Your next project...
14. (Toolkit – Decision Rules – PBAK, IRR, NPV) Calculating NPV & IRR: Your next project provides an annual cash flow of $15,400 for nine years and costs $67,000 today. Is this a good project at 8% required return? How about 20%? Question 14 options: Yes, Yes Yes, No No, Yes No, No
For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each...
For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years. Risk free rate = 1.10%, MRP = 9.5%, Required return = 14.40% Yes excel is fine Expected cash flows for the four potential projects that Avalon is...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT