# 10-8 - Truck NPV =-\$17,100 \$5,100(PVIFA 14,5 =-\$17,100...

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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.
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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....
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