FIN515_Homework5.docx - FIN515 Homework Assignment Week 5 Chapter 10 Problems(p 444 10-8 NPV IRRs and MIRRs for Independent Projects o Edelman

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FIN515 Homework Assignment Week 5 Chapter 10: Problems (p. 444) o 10-8 NPV 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 \$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 Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept–reject decision for each. o Truck NPV = \$408.71 = NPV (14%, 5100, 5100, 5100, 5100, 5100) – 17100 o Pulley NPV = \$3,318.11 = NPV (14%, 7500, 7500, 7500, 7500, 7500) – 22430 o Truck IRR = 14.99% = IRR (-17100, 5100, 5100, 5100, 5100, 5100)
o Pulley IRR = 20.00% = IRR (-22430, 7500, 7500, 7500, 7500, 7500) o Truck MIRR = 14.54% = MIRR ((-17100, 5100, 5100, 5100, 5100, 5100), 14%, 14%) o Pulley MIRR = 17.19% = MIRR ((-22430, 7500, 7500, 7500, 7500, 7500), 14%, 14%) o 10-9 NPVs and IRRs for Mutually Exclusive Projects Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the

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