Question

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

1. Calculate the IRR for each project. Round your answers to two decimal places.

   Truck: %
   
   What is the correct accept/reject decision for this project?
   -Select-AcceptReject

   
   Pulley: %
   
   What is the correct accept/reject decision for this project?
   -Select-AcceptReject

2. 
   

3. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

   Truck: $
   
   What is the correct accept/reject decision for this project?
   -Select-AcceptReject

   
   Pulley: $
   
   What is the correct accept/reject decision for this project?
   -Select-AcceptReject

4. 
   

5. Calculate the MIRR for each project. Round your answers to two decimal places.

   Truck: %
   
   What is the correct accept/reject decision for this project?
   -Select-AcceptReject

   
   Pulley: %
   
   What is the correct accept/reject decision for this project?
   -Select-AcceptReject

Answer 1

Answer to Part b.
Calculation of NPV:

Project Truck:

NPV = -$18,000 + $5,100/1.14^1 + $5,100/1.14^2 + $5,100/1.14^3 + $5,100/1.14^4 + $5,100/1.14^5
NPV = -$491.29

Reject the project, as it has negative NPV.

Project Pulley:

NPV = -$22,000 + $7,500/1.14^1 + $7,500/1.14^2 + $7,500/1.14^3 + $7,500/1.14^4 + $7,500/1.14^5
NPV = $3,748.11

Accept the project, as it has positive NPV.