(12-8) NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this years 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 firms 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.

Answer: NPVT. = $409; IRRT = 15% ;

MIRRT = 14.54%; Accept.

NPVP = $3,318 ; IRRP = 20% ; MIRRP = 17.19% ; Accept.

Suppose the values for this problem change to:

Cash Outlay for Truck: $16336

Cost of Capital: 13.5%

What is the modified internal rate of return for the truck project?