(10-8)\tNPVs, IRRs, and MIRRs for Independent Projects\tEdelman Engineering is 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 $17,100 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:\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tYear\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tTruck\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tPulley\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$5,100\u00a0\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$7,500\u00a0\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t2\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t5,100\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t7,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t3\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t5,100\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t7,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t4\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t5,100\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t7,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t5\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t5,100\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t7,500\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\u00a0\t\t\t\t\t\t\tCalculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept-reject decision for each.\t(10-9)\tNPVs and IRRs for Mutually Exclusive Projects\tDavis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.\t \ufffd \ufffd\u00a0\u00a0\u00a0\t(11-2)\tOperating Cash Flow\tCairn Communications is trying to estimate the first-year operating cash flow Operating Cash Flow (at t = 1) for a proposed project.\u00a0The financial staff has collected the following information:\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tProjected sales\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$10 million\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tOperating costs (not including depreciation)\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$\u00a07 million\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tDepreciation\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$\u00a02 million\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\tInterest expense\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t$\u00a02 million\t\t\t\t\t\t\tThe company faces a 40% tax rate. What is the project’s operating cash flow for the first year (t = 1)?\t(11-3)\tNet Salvage Value\tAllen Air Lines is now in the terminal year of a project. The equipment originally cost $20 million, of which 80% has been depreciated. Carter can sell the used equipment today to another airline for $5 million, and its tax rate is 40%. What is the equipment’s after-tax net salvage value?<\/p>\n","protected":false},"excerpt":{"rendered":"
(10-8) 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 year’s capital budget. The projects are independent. The cash outlay for the truck is Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-216730","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/216730","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=216730"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/216730\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=216730"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=216730"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=216730"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}