In: Finance
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.
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