Question

Cullumber Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses a 9 percent discount rate for production systems.

Year			System 1			System 2
0			-$15,500			-$49,707
1			15,656			33,630
2			15,656			33,630
3			15,656			33,630

Compute the IRR for both production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. 15.25%.)

IRR of system 1 is enter the IRR of System 1 in percentages rounded to 2 decimal places   % and IRR of system 2 is enter the IRR of System 2 in percentages rounded to 2 decimal places   %.

Which has the higher IRR?

select a system                                                          System 1System 2 has higher IRR.

Compute the NPV for both production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2 decimal places, e.g. 15.25.)

NPV of system 1 is $enter the NPV of System 1 in dollars rounded to 2 decimal places    and NPV of system 2 $enter the NPV of System 2 in dollars rounded to 2 decimal places  .

Which production system has the higher NPV?

select a system                                                          System 2System 1 has higher NPV.

Answer 1