(Solved by Humans)-Problem 24-47 DISCOUNT RATES, AUTOMATED MANUFACTURING, COMPETING INVESTMENTS A company is...
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Problem 24-47 DISCOUNT RATES, AUTOMATED MANUFACTURING, COMPETING INVESTMENTS A company is considering two competing investments. The first is for a standard piece of production equipment; the second is for computer-aided manufacturing (CAM) equip- ment. The investment and after-tax operating cash flows follow: Year Standard Equipment CAM Equipment 0 $(500,000) $(2,000,000) 1 300,000 100,000 2 200,000 200,000 3 100,000 300,000 4 100,000 400,000 5 100,000 400,000 6 100,000 400,000 7 100,000 500,000 8 100,000 1,000,000 9 100,000 1,000,000 10 100,000 1,000,000 The company uses a discount rate of 18 percent for all of its investments. The company’s cost of capital is 10 percent. Required: 1. Calculate the NPV for each investment by using a discount rate of 18 percent. 2. Calculate the NPV for each investment by using a discount rate of 10 percent. 3. Which rate should the company use to compute the NPV? Explain.
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This question was answered on: 10 May, 2025
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