Weeden Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: CAM X

Question:

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 10years. 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 for the company is 10%.
Required:
1. Calculate the NPV for each project. Which model would you recommend?
2. Calculate the IRR for each project. Which model would you recommend?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...