Wildhorse 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
0 -$15,080
1 15,294
2 15,294
3 15,294
Compute the IRR for bath production system 1 and production system 2. (Do not round intermediate calculations. Round answers to 2
System 2
-$47,448
33,300
33,300
33,300
decimal places, eg. 15.25%.)
IRR of system Lis
Which has the higher IRR?
w | has higher IRR.
‘Compute the NPY 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 1is $
Which production system has the higher NPV?
w) has higher NPV.
96 and IRF.of system 2 is
and NPV of system 2 $
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