Question: Hardy Inc intends to invest in one of two competing

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?

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  • CreatedSeptember 22, 2015
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