стр. 111 
Using interpolation:
PV
24yo 2.4043 2.4043
2.4000
True rate
2.2410
28YO
0.0043 0.1633
Difference
0.0043
+ 0.11% = 24.11%
IRR = 24% +(4%) = 24%
0.1633
The IRR for project B is:
Present Net Present
Present Net Present
Cash
Value of $1
Value of $1
(Outflow) Value Value
of Cash Flow
of Casb Flow at 22%
at 20%
Year Mow
$(12 , o w $(12,Ow $(moo)
1.Ooo 1.Ooo
0
11,315
12,058 0.4526"
0.4823
$25,000
4
58 $ (685)
$
NPV
20%o $ 50
$50
True rate 0

22% (685)
$50
 $735
Difference
$50
IRR = 20% + (2%) + 0.14% = $20.14
= 20%
$735
(b) In summary,
IRR
Projects NPV
24.11%
$3,850
A
$5,075 20.14%
B
Under the NPV method, choose B over A. Under the IRR method, choose A over B.
The decision of which project to choose hinges on assumptions made about reinvestment of cash
(c)
inflow. Theory suggests resorting to the NPV method because the cost of capital reinvestment
assumption implicit in this method is considered to be a more realistic assumption than the IRR, where
a reinvestment at the IRR is assumed. Therefore, choose B rather than A, using the NPV ranking.
82
.1 The Modified Internal Rate of Return (MIRR). Refer to Problem 8.20. Compute MIRRs for
projects A and B. Compare the ranking by MIRR with the one by NPV.
SOLUTION
First, compute the terminal value (TV) compounded at the cost of capital 10 percent.
5,000 FVIFAlo.3 = 5,000 X 3.3100 = 16,550.00
A: TV =
237
CAPITAL BUDGETING (INCLUDING LEASING)
CHAP. 81
Next, find the IRR by setting:
12,000= 16,390.50 PVIFMIRR.4
PVIF = 12,000116,390.50= 0.7321, which gives MIRR = about 12%
Now we see the consistent ranking from both the NPV and MIRR methods.
I I
NPV io˜˜
MIRR at
1
12% $3,850
20.14 5,075
Replacement Decisions with Unequal Lives. Consider two projects, X and Y
8.22
Annual afteptax cash i d o w
Project Life
cost
X $50,000 10 years $9,000
Y 7,500
15
50,000
The companyвЂ™s cost of capital is 10 percent.
1. Determine the adjusted NPV for each project, using the replacement chain
procedure.
2. Determine the equivalent annual annuity for each project.
3. Which project should be taken?
SOLUTION
1. First, determine each projectвЂ™s original NPV as follows:
NPVx = $9,0oO PVIFAl0,lo $50,000
= $9,000(6.1446)  $50,000
= $55,301.40  $50,000
= $5,301.40
NPVy = $7,500 PVIFAIs,Io $50,000
= $7,500(7.6061)  $50,000
= $57,045.75  $50,000
= $7,045.75
Then, compute adjusted NPV for each project at a common life of 30 years:
Adjusted NPVx = $5,301.40 + $5,301.40 PVIFlo,lo $5,301.40 PVIFm.10
+
= $5,301.40 + $5,301.40(0.3855) + $5,301.40(0.1486)
= $5,301.40 + $2,043.69 + $787.79
= $8,132.88
Adjusted NPVY= $7,045.75 + $7,045.75 PVIF1S.10
= $7,045.75 + $7,045.75(0.2394)
= $7,045.75 + $1,686.75
= $8,732.50
2. Based on the original NPVs, we get:
EAAx = $5,301.40/PVIFA˜o˜lo$5,301.40/6.1446 = $862.77
=
EAAy = $7,045.751PVIFA˜˜,lo $7,045.75/7.6061 = $926.33
=
[CHAP. 8
CAPITAL BUDGETING (INCLUDING LEASING)
238
стр. 111 