Question

# Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash...

Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow:

 Year Project I Project II 0 \$(100,000) \$(100,000) 1 — 63,857 2 134,560 63,857

Skiba's cost of capital is 8%.

Required: 1. Compute the NPV and the IRR for each investment. Round present value calculations and your final NPV answers to the nearest dollar. Round IRR answers to the nearest whole percent.

 Calculation of net present value year pv factor present value 0 -100000 1 -100000 2 134560 0.85734 115364 net present value = present value of cash inflow-outflow net present value = 115364-100000 = 15364 IRR initial investment = cash inflow at the end yr2*pvf(i%,2yr) 100000 = 134560*pvf(i%,2 yrs) Pvf(i%,2yrs) = 100000/134560 = 0.74316 IRR = 16% Project II year Pvf present value 0 -100000 1 -100000 1-2 63857 1.78326 113874 Net present value = 113874-100000 = 13874 IRR 100000 = 63857*pvaf(i%,2yrs) pvaf (i%,2yr) = 100000/63857 pvaf (i%,2yr) = 1.5660 IRR = 18%

#### Earn Coins

Coins can be redeemed for fabulous gifts.