Refer to Present Value Tables The Company's Cost of Capital Is 12

question 55

Essay

Refer to Present Value Tables. A company is considering two modifications to its current manufacturing process. The after-tax cash flows associated with the two investments are: $\begin{array}{lrr}\text { Year } & \text { Project I } & \text { Project II } \\\hline 0 & \$(37,500) & \$(150,000) \\1 & -- & 91,075 \\2 & \$ 50,460 & 91,075\end{array}$ The company's cost of capital is 12%.
Required:
A. Calculate the net present value for each investment.
B. Calculate the internal rate of return for each investment.
C. Which project is better? Explain your reasoning.

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