When considering including two pieces of equipment, a truck and an overhead pull

Question

When considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,400, and that for the pulley system is $20,200. The firm's cost of capital is 13.50%. After-tax cash flows, including depreciation, are as follows:

Year    Truck      Pulley
1     $4,500           $9,300      
2     $4,500           $9,300      
3     $4,500           $9,300      
4     $4,500           $9,300      
5     $4,500           $9,300      

a. Calculate MIRR of truck project.

b. Calculate NPV and MIRR of pulley project

Please Show Work

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

MIRR (Truck) = MIRR(-17400,4500,4500,4500,4500,4500,0,13.50%) = 11.10%

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Part B:

NPV = -20200 + 9300/(1+.1350)^1 + 9300/(1+.1350)^2 + 9300/(1+.1350)^3 + 9300/(1+.1350)^4 + 9300/(1+.1350)^5 = $12115.11

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MIRR (Pulley) = MIRR(-20200,9300,9300,9300,9300,9300,0,13.50%) = 24.68%

Thanks.

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