Question

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-AcceptReject

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

А В C D Е Cost of Capital 14% 1 2 Pulley -$22,000.00 $7,500.00 $7,500.00 3 Truck Year -$18,000.00 $5,100.00 $5,100.00 $5,100.00 $5,100.00 $5,100.00 0 5 6 2 $7,500.00 $7,500.00 $7,500.00 7 4 5 10 IRR 20.88% 11 12.86% Decision 12 Reject Ассept 13 NPV Decision -$491.29 $3,748.11 14 15 Reject Ассept 16 MIRR 17 13.37% 17.64% 18 Decision Reject Ассept 19 20 21 st LC LC

Cell reference -

A В D Cost of Capital 0.14 1 2 Pulley 3 Truck Year -18000 5100 5100 5100 5100 5100 -22000 7500 7500 2 6 7500 7 4 7500 8 9 7500 10 =IRR(D4: D9) =IRR(C4:C9) IRR 11 12 Decision Reject Аcсept 13 =D4+NPV($C$1,D5:D9) =C4+NPV($C$1,C5:C9) Reject 14 NPV Decision 15 Аcсept 16 MIRR(D4:D9, C 1,C1) -MIRR(C4:C9,C1,с1) 17 MIRR Decision 18 Reject Аcсept 19 20 LO st LC

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.