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Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system,...

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 $15,000 and that for the pulley system is $21,000. The firm's cost of capital is 11%. 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-AcceptRejectItem 2


    Pulley:  %

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 4


  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-AcceptRejectItem 6


    Pulley: $  

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 8


  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-AcceptRejectItem 10


    Pulley:  %

    What is the correct accept/reject decision for this project?

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Homework Answers

Answer #1

Answer a:

IRR of Truck = 20.76%

Accept

Since IRR > Cost of capital

IRR of Pulley = 23.06 %

Accept

Since IRR > Cost of capital

Answer b:

NPV of Truck = $3,849

Accept

Since NPV is positive

NPV of Pulley = $6,719

Accept

Since NPV is positive

Answer c:

MIRR of Truck = 16.19%

Accept

Since MIRR > Cost of capital

MIRR of Pulley = 17.34%

Accept

Since MIRR > Cost of capital

Workings for answers a, b and c:

Above excel with show formula:

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