Question

Patterson Company is considering two competing investments. The first is for a standard piece of production equipment. The second is for computer- aided manufacturing (CAM) equipment. The investment and after- tax operating cash flows follow:
Patterson uses a discount rate of 18 percent for all of its investments. Patterson’s cost of capital is 10 percent.
Required:
1. Calculate the NPV for each investment by using a discount rate of 18 percent.
2. Calculate the NPV for each investment by using a discount rate of 10 percent.
3. Which rate should Patterson use to compute the NPV? Explain.


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  • CreatedSeptember 22, 2015
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