Answer:
1. NPV
FLEX-1K: $3,960,535
FLEX-2Z : $4,620,624
FLEX-2Z
2. IRR
FLEX-1K: 21. 4%
FLEX-2Z : 21.4%
FLEX-1K or FLEX-2Z
Explanation:
The Net present value is the present value of after tax cash flows substracted from the amount invested.
The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.
Using the Financial calculator to calculate the NPV and IRR for FLEX-1K system:
Cash flow for year zero = $-9,600,000
Cash flow each year from year one to ten = $2,400,000
Discount rate = 12%
NPV = $3,960,535.268 = $3,960,535 to the nearest dollar
IRR = 21.406 %
Using the Financial calculator to calculate the NPV and IRR for FLEX-2Z:
Cash flow for year zero = -$11,200,000
Cash flow each year from year one to ten = $2,800,000
Discount rate = 12%
NPV = $4,620,624.480 =$4,620,624
IRR = 21.406%
Using the NPV , the FLEX-2Z would be chosen because it has a higher NPV.
Using the IRR, either projects can be chosen because they have the same IRR.
I hope my answer helps you.
