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 $19,000 and that for the pulley system is $20,000. The firm's cost of capital is 12%. 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 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
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
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?
a] and b]
As per IRR rule, a project should be accepted if its IRR is higher than the cost of capital.
Truck - reject
Pulley - accept
c] and d]
As per NPV rule, a project should be accepted if its NPV is positive
Truck - reject
Pulley - accept
e]
As per MIRR rule, a project should be accepted if its MIRR is higher than the cost of capital.
Truck - reject
Pulley - accept
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