Chapter 10 Problems

10-8. Using the Excel Toolkit,

INPUTS:
r = 14%

Year 0 1 2 3 4 5
Trucks −$17,100 $5,100 $5,100 $5,100 $5,100 $5,100
Pulley −$22,430 $7,500 $7,500 $7,500 $7,500 $7,500

Panel B: Summary of Selected Evaluation Measures

Truck Pulley
Net present value, NPV $408.71 $3,318.11
Internal rate of return, IRR 14.69% 20.00%
Modified IRR, MIRR 14.54% 17.19%

Since the projects both have positive NPV and IRR, we should accept both.

10-9. Using Excel Toolkit,

INPUTS:
r = 12%

Year 0 1 2 3 4 5 6
Electric Truck −$22,000 $6,290 $6,290 $6,290 $6,290 $6,290 $6,290
Gas Truck −$17,500 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Panel B: Summary of Selected Evaluation Measures

Electric Gas
Net present value, NPV $3,860.75 $3,057.04
Internal rate of return, IRR 18.00% 17.97%

We should purchase the Electric powered truck because it has higher NPV.

10 -10.

INPUTS:
r = 12%

Year 0 1 2 3 4 5
S −$10,000 $3,000 $3,000 $3,000 $3,000 $3,000
L −$25,000 $7,400 $7,400 $7,400 $7,400 $7,400

Panel B: Summary of Selected Evaluation Measures

S L
Net present value, NPV $814.33 $1,675.34
Internal rate of return, IRR 15.24% 14.67%
Modified IRR, MIRR 13.77% 13.46%
Profitability index, PI 1.08 1.07
Based on NPV, L is chosen as it has higher NPV. On all the other ranking methods, Project S
should be selected because it has higher IRR, MIRR and PI than L.

10-11.

INPUTS:
r = 12%

Year 0 1 2 3 4
X −$5,000 $1,000 $1,500 $2,000 $4,000
Y −$5,000 $4,500 $1,500 $1,000 $500

Panel B: Summary of Selected Evaluation Measures

X Y
Modified IRR, MIRR 17.49% 18.39%

Project Y has the higher MIRR.