Edelman Engineering

| March 21, 2015

solution of given Question

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 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 and interpret the following. Please show ALL your work, state the

decision criteria, and state your capital budgeting choices as you go along: a. Payback Period b. Discounted Payback Period c. Profitability Index d. Net Present Value e. Internal Rate of Return f. Modified Internal Rate of Return

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