Question

X Co. is considering replacing 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 $ 15,200 and that for the pulley system is $ 20,000. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation are as follows:

Year                          Truck                          Pulley

1                                 $ 5,300                       $ 7,500

2                                    5,300                          7,500

3                                    5,300                          7,500

4                                    5,300                          7,500

5                                    5,300                          7,500

Calculate the IRR, NPV and the MIRR for each project, and indicate the accept-reject decision in each case.

Answer 1