NPV and IRR, Mutually Exclusive Projects

For discount factors use Exhibit 12B-1 and Exhibit 12B-2.

Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: 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 $3,600,000, and it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. The cost of capital for the company is 10%.

Required:

1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar.

CAM X:	$
CAM Y:	$

NPV and IRR, Mutually Exclusive Projects For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: 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 $3,600,000, and it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. The cost of capital for the company is 10%. Required: 1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar. CAM X: s 1,286,740 x CAMY: 1,501,200 X Which model would you recommend using NPV? CAMY 2. Select the IRR for each project. CAM X: 20% - 25% / CAMY: 20% - 25% Which model would you recommend using IRR? Both Feedback Check My Work 1. Net Present Value (NPV): NPV = P.I The difference between the present value of future cash flows and the initial investment outlay. Apply the discount rate to the cash flows using the cost of capital with either Exhibit. Review the "How to Calculate Net Present Value and Internal Rate of Return for Mutually Exclusive Projects" example in the text. 2. Internal Rate of Return (IRR): Calculate the discount factor Discount factor (df) = Investment (I) / Annual Cash Flow (CF) Then find the row corresponding to the number of years in the Present Value of an Annuity Table and move across that row until the computed discount factor is found. The interest rate corresponding to this discount factor is the IRR. Review the "How to Calculate Internal Rate of Return with Uniform Cash Flows" example in the text