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Calculate the npv-irr and payback period

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Reference no: EM132746914

1. Olsen 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 firm's required rate of return is 14 percent.

  • The cash outflow/cost for the truck is $22,430. This project has an estimated life of five years. The annual flow expected to be provided by the truck is $7,500, and for the pulley, it is $5,100.
  • The cash outflow/cost for the pulley system it is $17,100. This project also has an estimated life of five years. The annual flow expected to be provided by the pulley is$5,100 each year.

Question:

a. Calculate the NPV & IRR for each project.

b. Indicate which project(s) should be accepted.

2. Project P costs $15,000 and is expected to produce benefits (cash flows) of $4,500 per year for five years. Project Q costs $37,500 and is expected to produce cash flows of $11,100 per year for five years.

a. Calculate the NPV, IRR, and payback period for each project, assuming a required rate of return of 14 percent.

b. If the projects are independent, which project(s) should be selected? If they are mutually exclusive projects, which project should be selected?

Reference no: EM132746914

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