HOW TO SOLVE - NPVs, IRRs, and MIRRs for Independent Projects

Problem 10-08
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

a. 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?
   

b. 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?
   

c. 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?