2. ABC Company has two projects: A: It is considering to purchase an equipment to be...

 

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2. ABC Company has two projects: A: It is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will have annual cash inflow by $2,200. The life of the equipment is 6 years. After 6 years, it will have no salvage value. The management wants a 20% return on all investments. B: It is planning to reduce its labor costs by automating a critical task that is currently performed manually. The cost to purchase a new machine is $15,000. The installation of machine can reduce annual labor cost by $4,200. The life of the machine is 15 years. The salvage value of the machine after fifteen years will be zero. The required rate of return of Smart Manufacturing Company is 25%. a) Will you go ahead with this project A? Explain. b) Will you go ahead with this project B? Explain. c) What about if these two projects are two mutually exclusive ones? d) Will IRR and NPV always give you the same results? 2. ABC Company has two projects: A: It is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will have annual cash inflow by $2,200. The life of the equipment is 6 years. After 6 years, it will have no salvage value. The management wants a 20% return on all investments. B: It is planning to reduce its labor costs by automating a critical task that is currently performed manually. The cost to purchase a new machine is $15,000. The installation of machine can reduce annual labor cost by $4,200. The life of the machine is 15 years. The salvage value of the machine after fifteen years will be zero. The required rate of return of Smart Manufacturing Company is 25%. a) Will you go ahead with this project A? Explain. b) Will you go ahead with this project B? Explain. c) What about if these two projects are two mutually exclusive ones? d) Will IRR and NPV always give you the same results?

Answer rating: 100% (QA)

a NPV is positive and IRR over RoR so will go for pr... View the full answer