Question: NPV and IRR, Mutually Exclusive Projects 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 $3,000,000, and it has a net annual after-tax cash inflow of $750,000. The CAM Y model is more expensive, selling for $3,500,000, but it will produce a net annual after-tax cash inflow of $875,000. The cost of capital for the company is 10 percent.
Required: 1. Calculate the NPV for each project. Which model would you recommend?
2. Calculate the IRR for each project. Which model would you recommend?