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:

Year	Truck	Pulley
1	$5,100	$7,500
2	5,100	7,500
3	5,100	7,500
4	5,100	7,500
5	5,100	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

jeff jeffy answered 1 year ago

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