FI515_Homework5_LarryBrowning

FI515_Homework5_LarryBrowning - (10-8) Edelman Engineering...

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(10-8) Edelman Engineering is considering including two pieces of equipment, a truck and an over- head 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 Frm’s cost of capital is 14%. After tax cash flows, including depreciation, are included on the table be- low. Calculate the IRR, NPV, and PI for each project and indicate the correct accept/reject decision for each. Year Truck Pulley 0 ($17,200) ($22,4 30) 1 $5,100 $7,50 0 2 $5,100 $7,50 0 3 $5,100 $7,50 0 4 $5,100 $7,50 0 5 $5,100 $7,50 0 IRR 14.99% 20.00 % NPV $408.71 $3,31 8.11 PI 1.024 1.148 We would make the decision to accept both projects if the Frm didn’t face a capital rationing situation. If the Frm was capital rationed (and could only choose one project), we would choose the Pulley. (10-9) Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same
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FI515_Homework5_LarryBrowning - (10-8) Edelman Engineering...

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