Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Tada

Question:

Each of the following scenarios is independent. All cash flows are after-tax cash flows.

Required:

1. Tada Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be $1,000,000 per year. The system costs $6,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system?

2. Lehi Henderson has just invested $1,350,000 in a restaurant specializing in Italian food. He expects to receive $217,350 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Lehi make a good decision?

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