Answered: Edelman Engineering is considering…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 8P: Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley...

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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 $18,000, and that for the pulley system is $22,000. The firm's cost of capital is 14%. 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, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places. Use a minus sign to enter negative values, if any.

	Truck		Pulley
	Value	Decision		Value	Decision
IRR	%	-Select-AcceptRejectItem 2		%	-Select-AcceptRejectItem 4
NPV	$	-Select-AcceptRejectItem 6		$	-Select-AcceptRejectItem 8
MIRR	%	-Select-AcceptRejectItem 10		%	-Select-AcceptRejectItem 12

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Independent projects are those that do not depend on the other projects to be selected and the funding of the project also do not depend on the other existing or new projects.

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