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Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger
Edition 4ISBN: 978-0324380767Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger
Edition 4ISBN: 978-0324380767 Exercise 23
NPV and IRR, Mutually Exclusive Projects
Hardy 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 $3,000,000, and it has a net annual after-tax cash inflow of $750,000. The CAM Y model is more expensive, selling for $3,500,000, but it will produce a net annual after-tax cash inflow of $875,000. The cost of capital for the company is 10 percent.
Required:
1. Calculate the NPV for each project. Which model would you recommend
2. Calculate the IRR for each project. Which model would you recommend
Hardy 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 $3,000,000, and it has a net annual after-tax cash inflow of $750,000. The CAM Y model is more expensive, selling for $3,500,000, but it will produce a net annual after-tax cash inflow of $875,000. The cost of capital for the company is 10 percent.
Required:
1. Calculate the NPV for each project. Which model would you recommend
2. Calculate the IRR for each project. Which model would you recommend
Explanation
Verified
Verified
NPV measures the profitability of a firm...
Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger
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