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 $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

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

Truck:  %

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

Pulley:  %

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

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?

Pulley: $  

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

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

Truck:  %

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

Pulley:  %

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

Answer 1

For Independenta Projects, either one or both of the projects can be selected if they meet certain decision making criteria for each of the parameter:

1. IRR > Cost of Capital. A project is acceptable if IRR is greater than cost of capital, it effectively means, return generated is higher than the cost incurred on capital nd hence the project is acceptable.

2. NPV > 0. A project is selectable if NPV of it is positive. Positive NPV signifies that the project will add value to the firm and hence should be selected.

3. MIRR > Cost of Capital. A project is acceptable if MIRR is greater than cost of capital, it effectively means, return generated is higher than the cost incurred on capital nd hence the project is acceptable.

For the two projects,