Martac plc is a manufacturer of Martac-aphro. Two new automated process machines used in the produc- tion of Martac-aphro have been introduced to the market, the CAM and the ATR. Both will give cost savings over existing processes:

All other factors remain constant and the firm has access to large amounts of capital. The required return on projects is 8 per cent.

Required

(a) Calculate the IRR for the CAM project.

(b) Calculate the IRR for the ATR project.

(c) Based on IRR which machine would you purchase?

(d) Calculate the NPV for each project.

(e) Based on NPV which machine would you buy?

(f) Is IRR or NPV the better decision tool?

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000s Initial cost (machine purchase and installation, etc.) Cash flow savings: At Time 1 (one year after the initial cash outflow) At Time 2 At Time 3 At Time 4 CAM 120 ATR 250 2288 48 90 48 90 48 90 48 90 80 80 80 80