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AccountingManagerial Accounting: The Cornerstone of Business Decision-Making7th Edition

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Chapter 12, Problem 30BEB
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Solutions

Chapter
Section
Problem 1DQ
Problem 2DQ
Problem 3DQ
Problem 4DQ
Problem 5DQ
Problem 6DQ
Problem 7DQ
Problem 8DQ
Problem 9DQ
Problem 10DQ
Problem 11DQ
Problem 12DQ
Problem 13DQ
Problem 14DQ
Problem 15DQ
Problem 1MCQ
Problem 2MCQ
Problem 3MCQ
Problem 4MCQ
Problem 5MCQ
Problem 6MCQ
Problem 7MCQ
Problem 8MCQ
Problem 9MCQ
Problem 10MCQ
Problem 11MCQ
Problem 12MCQ
Problem 13MCQ
Problem 14MCQ
Problem 15MCQ
Problem 16MCQ
Problem 17MCQ
Problem 18MCQ
Problem 19MCQ
Problem 20MCQ
Problem 21BEA
Problem 22BEA
Problem 23BEA
Problem 24BEA
Problem 25BEA
Problem 26BEB
Problem 27BEB
Problem 28BEB
Problem 29BEB
Problem 30BEB
Problem 31E
Problem 32E
Problem 33E
Problem 34E
Problem 35E
Problem 36E
Problem 37E
Problem 38E
Problem 39E
Problem 40E
Problem 41P
Problem 42P
Problem 43P
Problem 44P
Problem 45P
Problem 46P
Problem 47P
Problem 48P
Problem 49P
Problem 50P
Problem 51P
Problem 52P
Problem 53P
Problem 54C
Problem 55C
Problem 1MTC
Problem 2MTC
Problem 3MTC
Problem 4MTC
Problem 5MTC
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
160 views

NPV and IRR, Mutually Exclusive Projects

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. 1. Calculate the NPV for each system. Which system would you recommend?
  2. 2. Calculate the IRR for each system. Which system would you recommend?

1.

To determine

Compute NPV for each System and recommend a system to be chosen.

Explanation

Net Present Value:

The remaining balance of the present value of a project’s inflows and outflows is known as net present value (NPV). It is a discounting model of capital investment decision. A project with a positive NPV increases the wealth of a firm whereas a project with a negative NPV decreases the wealth of a firm.

Use the following formula to calculate NPV for System F1K:

NPV=Present value of cash inflow(P)−Present value of cash outflow(I)

Substitute $13,560,5281 for P and $9,600,000 for I in the above formula.

NPV=$13,560,528−$9,600,000=$3,960,528

Therefore, net present value for System F1K is $3,960,528.

Use the following formula to calculate NPV for System F2Z:

NPV=Present value of cash inflow(P)−Present value of cash outflow(I)

Substitute $15,820,6162 for P and $11,200,000 for I in the above formula.

NPV=$15,820,616−$11,200,000=$4,620,616

Therefore, net present value for System F2Z is $4,620,616

2.

To determine

Compute IRR for each project and recommend a model to be chosen.

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Chapter 12 Solutions

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Ch-12 P-1DQCh-12 P-2DQCh-12 P-3DQCh-12 P-4DQCh-12 P-5DQCh-12 P-6DQCh-12 P-7DQCh-12 P-8DQCh-12 P-9DQCh-12 P-10DQ
Ch-12 P-11DQCh-12 P-12DQCh-12 P-13DQCh-12 P-14DQCh-12 P-15DQCh-12 P-1MCQCh-12 P-2MCQCh-12 P-3MCQCh-12 P-4MCQCh-12 P-5MCQCh-12 P-6MCQCh-12 P-7MCQCh-12 P-8MCQCh-12 P-9MCQCh-12 P-10MCQCh-12 P-11MCQCh-12 P-12MCQCh-12 P-13MCQCh-12 P-14MCQCh-12 P-15MCQCh-12 P-16MCQCh-12 P-17MCQCh-12 P-18MCQCh-12 P-19MCQCh-12 P-20MCQCh-12 P-21BEACh-12 P-22BEACh-12 P-23BEACh-12 P-24BEACh-12 P-25BEACh-12 P-26BEBCh-12 P-27BEBCh-12 P-28BEBCh-12 P-29BEBCh-12 P-30BEBCh-12 P-31ECh-12 P-32ECh-12 P-33ECh-12 P-34ECh-12 P-35ECh-12 P-36ECh-12 P-37ECh-12 P-38ECh-12 P-39ECh-12 P-40ECh-12 P-41PCh-12 P-42PCh-12 P-43PCh-12 P-44PCh-12 P-45PCh-12 P-46PCh-12 P-47PCh-12 P-48PCh-12 P-49PCh-12 P-50PCh-12 P-51PCh-12 P-52PCh-12 P-53PCh-12 P-54CCh-12 P-55CCh-12 P-1MTCCh-12 P-2MTCCh-12 P-3MTCCh-12 P-4MTCCh-12 P-5MTC

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