Glennard M.

Alcovendas
BSA-A2C

Assignment 1: NPV and IRR, Mutually Exclusive Projects

Hunt 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 P3,600,000 and it
has a net annual after-tax cash inflow of P900,000.  The CAM Y model is more
expensive, selling for P4,200,000, but it will produce a net annual after-tax cash inflow
of P1,050,000.  The cost of capital for the company is 10%.

1.  Calculate the NPV for each project.  Which model would you recommend?
CAM X

0 -3,600,000 1 -3,600,000.00
1 900,000 0.909091 818,181.82
2 900,000 0.826446 743,801.65
3 900,000 0.751315 676,183.32
4 900,000 0.683013 614,712.11
5 900,000 0.620921 558,829.19
6 900,000 0.564474 508,026.54
7 900,000 0.513158 461,842.31
8 900,000 0.466507 419,856.64
9 900,000 0.424098 381,687.86
10 900,000 0.385543 346,988.96

NPV = 1,930,110.40

CAM Y
0 -4,200,000 1 -4,200,000.00
1 1,050,000 0.909091 954,545.45
2 1,050,000 0.826446 867,768.60
3 1,050,000 0.751315 788,880.54
4 1,050,000 0.683013 717,164.13
5 1,050,000 0.620921 651,967.39
6 1,050,000 0.564474 592,697.63
 7 1,050,000 0.513158 538,816.02
8 1,050,000 0.466507 4898,32.75
9 1,050,000 0.424098 4453,02.50
10 1,050,000 0.385543 4048,20.45
NPV = 2,251,795.46

I will recommend project CAM Y since it has higher Net Present Value than CAM X.

2.  Calculate the IRR for each project.  Which model would you recommend?

CAM X = 10%
CAM Y = 10%

Both models have the same IRR therefore, I recommend both project CAM X and CAM
Y.