Contract Manufacturing, Inc. is considering two alternative investment proposals. The first proposal calls for a major renovation
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Contract Manufacturing, Inc. is considering two alternative investment proposals. The first proposal calls for a major renovation of the company€™s manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below, and the firm discounts project cash flows at 15%.
Rank these investments based on their NPVs.
Rank these investments based on their IRRs.
Why do these rankings yield mixed signals?
Transcribed Image Text:
Year Renovate Replace 0 -S9,000,000-S1,000,000 1 3,500,000 60,000 3,000,000 500,000 3,000,000 4,000 300.000 200,000 2,800,000 5 2,500,000
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Project NPV IRR Renovate 1128309 205 Replace 433779 361 The Renovate project has a higher NPV ...View the full answer
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Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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