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
2. Calculate the IRR for each project.
CAM X:20% to 25%
CAM Y:20% to 25%
Which model would you recommend?
Answers: 3
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