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Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs $900,000 and will produce net cash inflows of $300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs $775,000 and will produce labor savings of $400,000 and $500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are $250,000 instead of $300,000?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter
Section
Chapter 19, Problem 4CE
Textbook Problem

Manzer Enterprises is considering two independent investments:

A new automated materials handling system that costs $900,000 and will produce net cash inflows of $300,000 at the end of each year for the next four years.

A computer-aided manufacturing system that costs $775,000 and will produce labor savings of $400,000 and $500,000 at the end of the first year and second year, respectively.

Manzer has a cost of capital of 8 percent.

Required:

  1. 1. Calculate the IRR for the first investment and determine if it is acceptable or not.
  2. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess.
  3. 3. What if the cash flows for the first investment are $250,000 instead of $300,000?

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Chapter 19 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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