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NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment,...

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 for each project. Do not round intermediate calculations. Round your answers to two decimal places.

Truck:   %

What is the correct accept/reject decision for this project?
Based on the IRR, this project should be -Select-acceptedrejectedItem 2 .

Pulley:   %

What is the correct accept/reject decision for this project?
Based on the IRR, this project should be -Select-acceptedrejectedItem 4 .

Calculate the NPV for each project. Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any.

Truck: $   

What is the correct accept/reject decision for this project?
Based on the NPV, this project should be -Select-acceptedrejectedItem 6 .

Pulley: $   

What is the correct accept/reject decision for this project?
Based on the NPV, this project should be -Select-acceptedrejectedItem 8 .

Calculate the MIRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.

Truck:   %

What is the correct accept/reject decision for this project?
Based on the MIRR, this project should be -Select-acceptedrejectedItem 10 .

Pulley:   %

What is the correct accept/reject decision for this project?
Based on the MIRR, this project should be -Select-acceptedrejectedItem 12 .

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Answer #1

Using excel formula to calculate IRR,NPV,MIRR

A B
Year Project A Project B
1 0 -18000 -22000
2 1 5100 7500
3 2 5100 7500
4 3 5100 7500
5 4 5100 7500
6 5 5100 7500
IRR 12.86% 20.88%
Using excel formula IRR(A1:A6) IRR(B1:B6)
NPV ($491.29) $3,748.11
Using excel formula NPV(14%,A2:A6)+A1 NPV(14%,B2:B6)+B1
MIRR 13.37% 17.64%
Using excel formula MIRR(A1:A6,14%,14%) MIRR(B1:B6,14%,14%)

Based on IRR Pulley project should be accepted because IRR is higher
Based on NPV Pulley project should be accepted because NPV is higher
Based on MIRR project Pulley project should be accepted because MIRR is higher

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