Cornerstone Exercise 14-25

NPV and IRR Mutually Exclusive Projects

Follow the format shown in Exhibit 14B-1 and Exhibit 14B-2 as you complete the requirements below.

Hardy 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 $3000000 and it has a net annual after-tax cash inflow of $750000. The CAM Y model is
more expensive selling for $3500000 but it wil produce a net annual after-tax cash inflow of $875000. The cost of capital for the company is 10 percent.

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?

2. Calculate the IRR for each project.

CAM X:

CAM Y:

Which model would you recommend?