Techno Inc. intends to invest in one of two competing types of flexible manufacturing systems: FLEX-1K and FLEX-2Z. Both systems have a project life of 10 years. The purchase price of the FLEX-1K system is $9,600,000, and it has a net annual after-tax cash inflow of $2,400,000. The FLEX-2Z is more expensive, selling for $11,200,000, but it will produce a net annual after-tax cash inflow of $2,800,000. The cost of capital for the company is 12%. Required: 1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar. FLEX-1K: $ FLEX-2Z: $ Which model would you recommend using NPV? FLEX-2Z 2. Calculate the IRR for each project. FLEX- 20% to 25% 1K: FLEX- 20% to 25% 2Z.: Which model would you recommend using IRR? Both
Techno Inc. intends to invest in one of two competing types of flexible manufacturing systems: FLEX-1K and FLEX-2Z. Both systems have a project life of 10 years. The purchase price of the FLEX-1K system is $9,600,000, and it has a net annual after-tax cash inflow of $2,400,000. The FLEX-2Z is more expensive, selling for $11,200,000, but it will produce a net annual after-tax cash inflow of $2,800,000. The cost of capital for the company is 12%. Required: 1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar. FLEX-1K: $ FLEX-2Z: $ Which model would you recommend using NPV? FLEX-2Z 2. Calculate the IRR for each project. FLEX- 20% to 25% 1K: FLEX- 20% to 25% 2Z.: Which model would you recommend using IRR? Both
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Am.111.
Transcribed Image Text:Techno Inc. intends to invest in one of two competing types of flexible manufacturing systems: FLEX-1K and FLEX-2Z. Both systems have a project life of 10 years. The
purchase price of the FLEX-1K system is $9,600,000, and it has a net annual after-tax cash inflow of $2,400,000. The FLEX-2Z is more expensive, selling for $11,200,000,
but it will produce a net annual after-tax cash inflow of $2,800,000. The cost of capital for the company is 12%.
Required:
1. Calculate the NPV for each project. Round present value calculations and your final answers to the nearest dollar.
FLEX-1K: $
FLEX-2Z: $
Which model would you recommend using NPV?
FLEX-2Z
2. Calculate the IRR for each project.
FLEX-
20% to 25%
1K:
FLEX-
20% to 25%
2Z.:
Which model would you recommend using IRR?
Both
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