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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 of these two mutually exclusive proposals. The cash flows associated with each project appear below: Year 0 1 2 3 4 5 Renovate -$9,000,000 3,500,000 3,000,000 3,000,000 2,800,000 2,500,000 Replace -$1,000,000 600,000 500,000 400,000 300,000 200,000 The firm discounts project cash flows at 15%.

Based on the NPV profile analysis and assuming the WACC is 15%, which project would you recommend for acceptance and why?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92801185

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