1.

Turbomachinery Parts, Inc. is considering two mutually exclusive equipment investments that would increase its production capacity. The firm uses a 14% cost of capital to evaluate its projects. The two investments have the following cash flows:

Year Investment D Investment E

0 -$50,000 -$50,000

1 24,000 15,000

2 24,000 15,000

3 24,000 15,000

4 - 0 - 15,000

5 - 0 - 15,000

6 - 0 - 15,000

a. Calculate the NPV and IRR for Investments D and E. Using the NPV and IRR rules, what decision would you make?

b. Use the uniform annuity series (also called the equivalent annual annuity) method to make your decision. How does your decision compare to the one made in part 1?