10-8 - Truck: NPV = -$17,100 + $5,100(PVIFA 14%,5 ) =...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
10-8 Edelman Engineering is considering including two pieces of equipment, 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 flow, 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 and the NPV, and indicate the correct accept/reject decision for each.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Truck: NPV = -$17,100 + $5,100(PVIFA 14%,5 ) = -$17,100 + $5,100(3.4331) = -$17,100 + $17,509 = $409. (Accept) Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 14, and then solve for NPV = $409. Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 14.99% 15%. (Accept) Pulley: NPV = -$22,430 + $7,500(3.4331) = -$22,430 + $25,748 = $3,318. (Accept) Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 14, and then solve for NPV = $3,318. Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 20%. (Accept) According to the NPV rule we accept projects with NPV 0 According to the IRR rule, we accept projects if the IRR is greater than the cost of capital....
View Full Document

Ask a homework question - tutors are online