10.3 What is the average accounting rate of return (ARR) on a piece of equipment that will cost $1.2 million and that will result in pretax cost savings of $380,000 for the first three years and then $280,000 for the following three years? Assume that the machinery will be depreciated to a salvage value of 0 over six years using the straight-line method and the company's tax rate is 32 percent. If the acceptance decision is based on the project exceeding an ARR of 20 percent, should this machinery be purchased?

10.4 What do we know about that project's IRR if we know that it has a positive NPV? 10.5 West Street Automotive is considering adding state safety inspections to its service off erings. Th e equipment necessary to perform these inspections will cost $557,000 and will generate cash flows of $195,000 over each of the next five years. If the cost of capital is 14 percent, what is the MIRR on this project? 10.6 You are chairperson of the investment committee at your firm. Five projects have been submitted to your committee for approval this month. Th e investment required and the project profitability index for each of these projects are presented in the following table:

10.5 West Street Automotive is considering adding state safety inspections to its service off erings. Th e equipment necessary to perform these inspections will cost $557,000 and will generate cash flows of $195,000 over each of the next five years. If the cost of capital is 14 percent, what is the MIRR on this project?

10.6 You are chairperson of the investment committee at your firm. Five projects have been submitted to your committee for approval this month. Th e investment required and the project profitability index for each of these projects are presented in the following table:

Project Investment PI

A $20,000 2.500

B 50,000 2.000

C70,000 1.750

D 10,000 1.000

E 80,000 0.800

If you have $500,000 available for investments, which of these projects would you approve? Assume that you do not have to worry about having enough resources for future investments