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Elgin Restaurant Supplies is analyzing the purchase of manufacturing equipment that will cost $62,000. The annual cash inflows are as follows. Use Appendix D.

Year	Cash Flow
1		$31,000
2		29,000
3		24,000

a. Determine the IRR using interpolation. (Round the intermediate calculations to the nearest whole dollar. Round the final answer to 2 decimal places.)

IRR %

b. With a cost of capital of 16 percent, should the machine be purchased?

• Yes

• No

c. With information from part b, compute the PI. (Round the final answer to 3 decimal places.)

PI

Problem 12-25

You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate of 13 percent. Use Appendix B.

Project X (DVDs of the Weather Reports) ($18,000 Investment)						Project Y (Slow-Motion Replays of Commercials) ($38,000 Investment)
Year		Cash Flow				Year		Cash Flow
1			$9,000			1			$19,000
2			7,000			2			12,000
3			8,000			3			13,000
4			7,600			4			15,000

a. Calculate the profitability index for project X. (Round "PV Factor" to 3 decimal places. Round the final answer to 2 decimal places.)

PI

b. Calculate the profitability index for project Y. (Round "PV Factor" to 3 decimal places. Round the final answer to 2 decimal places.)

PI

c. Using the NPV method combined with the PI approach, which project would you select? Use a discount rate of 13 percent.

• Project Y

• Project X

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