IRR, NPV, MIRR for Edelman Engineering
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10-3
Edelman Engineering is considering including two piece of equipment, a truck and an overhead pulley system, in this year's 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.
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Solution Summary
IRR, NPV, MIRR and Edelman Engineering are calculated. The solution indicates the correct accept/reject decision for each.
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This project will have an immediate (t=0) cash outflow of $17,100. Cash inflows are expected to be $5,100 per year for years 1-5. The required rate of return is 14%. The present value (PV) can be calculated for each year:
Truck
T=0 ($17,100 - 0)/ 1.14^0 = -$14,912 PV.
T=1 $5,100/ 1.14^1 = $4,474 PV.
T=2 $5,100/ 1.14^2 = $3,924 PV.
T=3 $5,100/ 1.14^3 = $3,442 PV.
T=4 $5,100/ 1.14^4 = $3,020 PV.
T=5 $5,100/ 1.14^5 = $2,649 ...
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