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FIN 515 Managerial Finance Week 5 Homework 5 Complete Answer

FIN 515 Managerial Finance Week 5 Homework 5 Complete Answer

FIN 515 Managerial Finance Week 5 Homework 5 Complete Answer

FIN 515 Managerial Finance Week 5 Homework 5 Complete Answer

FIN 515 Managerial Finance Week 5 Homework 5 Complete Answer

(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 \$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:

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.

(10-9)
NPVs and IRRs for Mutually Exclusive Projects

Davis 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.

(11-2)
Operating Cash Flow

Cairn Communications is trying to estimate the first-year operating cash flow Operating Cash Flow (at t = 1) for a proposed project. The financial staff has collected the following information:
Projected sales \$10 million
Operating costs (not including depreciation) \$ 7 million
Depreciation \$ 2 million
Interest expense \$ 2 million
The company faces a 40% tax rate. What is the project’s operating cash flow for the first year (t = 1)?

(11-3)
Net Salvage Value

Allen 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?