NPV AND IRR, MUTUALLY EXCLUSIVE PROJECTS Luckinbill Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment, built by two different manufacturers: CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $1,200,000; and has a net annual after-tax cash inflow of $300,000.

The CAM Y model is more expensive, selling for $1,400,000, but will produce a net annual after-tax cash inflow of $350,000. The cost of capital for the company is 10 percent.

Required:

. Calculate the NPV for each project. Which model would you recommend?

. Calculate the IRR for each project. Which model would you recommend?

Exercises Exercise