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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 $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
  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. 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


  3. 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?

Homework Answers

Answer #1

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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