Question
NPV and IRR, Mutually Exclusive Projects For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Techno Inc. intends to invest in one of two competing
NPV and IRR, Mutually Exclusive Projects
For discount factors use Exhibit 12B-1 and Exhibit 12B-2.
Techno Inc. intends to invest in one of two competing types of flexible manufacturing systems: FLEX-1K and FLEX-2Z. Both systems have a project life of 10 years. The purchase price of the FLEX-1K system is $9,600,000, and it has a net annual after-tax cash inflow of $2,400,000. The FLEX-2Z is more expensive, selling for $11,200,000, but it will produce a net annual after-tax cash inflow of $2,800,000. The cost of capital for the company is 12%.
Required:
1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar.
FLEX-1K: | $ |
FLEX-2Z Which model would you recommend using NPV? 2. Calculate the IRR for each project. Which model would you recommend using IRR? |
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