Contract Manufacturing, Inc., is considering two alternative investment proposals. The first proposal calls for a major renovation of the company's manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below, and the firm discounts project cash flows at 16%.
|
Year
|
Renovate
|
Replace
|
|
0
|
-$11,000,000
|
-$1,300,000
|
|
1
|
4,100,000
|
700,000
|
|
2
|
3,800,000
|
500,000
|
|
3
|
2,900,000
|
400,000
|
|
4
|
4,200,000
|
700,000
|
|
5
|
3,600,000
|
500,000
|
1. Rank these investments based on their NPVs.
1. Select-RenovateReplaceItem 1
2. Select-RenovateReplaceItem 2
2. Rank these investments based on their IRRs.
1. Select-RenovateReplaceItem 3
2. Select-RenovateReplaceItem 4
3. Calculate the IRR of the incremental project. Round your answer to one decimal point. %