Chip Corp. is planning to invest in one of two chip-producing plants. The after-tax cash flows for each are as follows.

Year Plant 1          Plant 2

0      -$5,000,000      -$8,000,000

1      3,500,000          3,000,000

2       1,500,000          2,750,000

3       1,000,000         2,500,000

4       500,000            2 ,250,000

5       300,000            2,000,000

1. Calculate the payback, internal rate of return, and net present value (assuming k=18%) for each plant.

1.  Relying on part (a) results, which project should be selected, 1 or 2. Briefly explain why your choice is the best.

Answer rating: 100% (QA)

To calculate the payback period internal rate of return IRR and net present value NPV for each plant investment we need to analyze the aftertax cash f... View the full answer