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?