Spacevoyage Inc. is considering the installation of a new experimental laboratory which requires a key equipment costing $5,000,000. It is expected that the equipment will generate important experimental material worth $2,000,000 for each of the next 5 years. In the 6^th year, the equipment will need an upgrade costing $2,500,000. Required return for this project is 15%.

a) Which capital budgeting method between NPV and IRR will be most suitable for arriving at a decision on whether or not to get the equipment installed? Briefly explain your reasons.

b) Should the new equipment be installed? Support your answer with relevant computation.

Answer rating: 100% (QA)

a The most suitable capital budgeting method for this project would be NPV Net Present Value method ... View the full answer