NPV and IRR, Mutually Exclusive Projects

For discount factors use Exhibit 14A.1 and Exhibit 14A.2.

Cuccoco 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 $2,400,000 and it has a net annual after-tax cash inflow of $600,000. The CAM Y model is more expensive, selling for $2,800,000, but will produce a net annual after-tax cash inflow of $700,000. The cost of capital for the company is 10 percent.

Required:

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

CAM X:	$
CAM Y:	$

Which model would you recommend? Select CAM X/CAM Y/both/neither

2. Calculate the IRR for each project.

CAM X:	Select 10% to 20% / 20% to25% / 25% to 30%
CAM Y:	Select 10% to 20% / 20% to 25% / 25% to 30%

Which model would you recommend? Select CAM X / CAM Y / both / neither