Net Present Value and Internal Rate of Return, Mutually Exclusive Projects

For discount factors use Exhibit 14B-1 and Exhibit 14B-2.

Weeden 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 $2,400,000, and it has a net annual after-tax cash inflow of $600,000. The CAM Y model is more expensive, selling for $2,800,000, but it will produce a net annual after-tax cash inflow of $700,000. The cost of capital for the company is 10%.

Required:

1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar.

CAM X:	$
CAM Y:	$

Which model would you recommend?

CAM Y

• CAM X
• CAM Y
• both
• neither

2. Calculate the IRR for each project.

CAM X:	20% to 25% 10% to 20% 20% to 25% 25% to 30%
CAM Y:	20% to 25% 10% to 20% 20% to 25% 25% to 30%

Which model would you recommend?

both

• CAM X
• CAM Y
• both
• neither