Question

Problem 10.25 Pharoah 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 7 percent discount rate for production systems Year System 1 System 2 -$15,930 -$46,938 0 16,083 33,100 1 2 16,083 33,100 3 16,083 33,100 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%.) % and IRR of system 2 is IRR of system 1 is Which has the higher IRR? 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 $ and NPV of system 2 $ Which production system has the higher NPV? as higher NPV System 1 System 2 buld like to Show Work for this question: Open Show Work

Answer 1

B D cash flows YEAR System 1 -$15,930 $16,083 $16,083 $16,083 85.02% IRR(B3:36) System 2 -$46,938 $33,100 $33,100 $33,100 49.35% IRR(C3:06) pv @ 7% 1.0000 0.9346 0.8734 0.8163 NPV 2 Ε F discounted cash flows System 1 System 2 -$15,930.00 -$46,938.00 $15,030.84 $30,934.58 $14,047.52 $28,910.82 $13,128.52 $27,019.46 $26,276.87 $39,926.86 IRR System 1 System 2 System 1 has higher IRR 85.02% 49.35% System 1 System 2 System 2 has higher NPV $26,276.87 $39,926.86