For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Hunt 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 $3,600,000, and it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. 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: $fill in the blank 1 CAM Y: $fill in the blank 2 Which model would you recommend using NPV? CAM Y 2. Select the IRR for each project. CAM X: 20% - 25% CAM Y: 20% - 25% Which model would you recommend using IRR? Both
NPV and IRR, Mutually Exclusive Projects
For discount factors use Exhibit 12B-1 and Exhibit 12B-2.
Hunt 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 $3,600,000, and it has a net annual after-tax
Required:
1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar.
| CAM X: | $fill in the blank 1 |
| CAM Y: | $fill in the blank 2 |
Which model would you recommend using NPV?
CAM Y
2. Select the IRR for each project.
| CAM X: 20% - 25% |
| CAM Y: 20% - 25% |
Which model would you recommend using IRR?
Both
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