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NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment,...

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 $17,100, and that for the pulley system is $22,430. 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.

Accept or Reject (Decision)

Truck Pulley
Value Decision Value Decision
IRR % %
NPV $            $           
MIRR % %

Solutions

Expert Solution

NPV is found using NPV function in excel by discounting the cash-flows at 14%

IRR is found using IRR function in excel by including all the cash-flows including the initial investment

MIRR is found using MIRR function in excel by assuming reinvestment rate=finance rate=14%

Since, IRR>Cost of capital, we accept the projects. Higher the IRR, better the project

Since NPV is positive, we accept the projects. Higher the NPV, better the project

Since, MIRR>Cost of capital, we accept the projects. Higher the MIRR, better the project

Year Truck Pulley
0 -17100 -22430
1 5100 7500
2 5100 7500
3 5100 7500
4 5100 7500
5 5100 7500
IRR 14.99% 20.00%
IRR Formula IRR(C3:C8) IRR(D3:D8)
Decision Accept Accept
NPV 409 3318
NPV Formula C3+NPV(14%,C4:C8) D3+NPV(14%,D4:D8)
Decision Accept Accept
MIRR 14.54% 17.19%
MIRR Formula MIRR(C3:C8,14%,14%) MIRR(D3:D8,14%,14%)
Decision Accept Accept

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