Techno Inc. intends to invest in one of two competing types of flexible manufacturing systems: FLEX-1K and

Question:

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 system. Which system would you recommend?

2. Calculate the IRR for each system. Which system would you recommend?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...