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Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system,...

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 $17,100 and that for the pulley system is $22,430. 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

  1. Calculate the IRR for each project. Round your answers to two decimal places.

    Truck:  %

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 2


    Pulley:  %

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 4


  3. 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?
    -Select-AcceptRejectItem 6


    Pulley: $  

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 8

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 $17,100 and that for the pulley system is $22,430. 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

  1. Calculate the IRR for each project. Round your answers to two decimal places.

    Truck:  %

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 2


    Pulley:  %

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 4


  3. 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?
    -Select-AcceptRejectItem 6


    Pulley: $  

    What is the correct accept/reject decision for this project?
    -Select-AcceptRejectItem 8

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Homework Answers

Answer #1

1.
IRR of project

Truck
=IRR({-17100;5100;5100;5100;5100;5100})
=14.99%

Pulley
=IRR({-22430;7500;7500;7500;7500;7500})
=20.00%

2.
Truck Accept
Pulley Accept

3.
NPV of project

Truck
=NPV(14%,{-17100;5100;5100;5100;5100;5100})*(1+14%)
=408.71294

Pulley
=NPV(14%,{-22430;7500;7500;7500;7500;7500})*(1+14%)
=3318.10727

4.
Truck Accept
Pulley Accept

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