Rank the investments based on their npvs

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Reference no: EM131328702

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 15 percent.

Year	Renovate	Replace
0	-$9,000,000	-$1,000,000
1	3,500,000	600,000
2	3,000,000	500,000
3	3,000,000	400,000
4	2,800,000	300,000
5	2,500,000	200,000

a. Rank these investments based on their NPVs.

b. Rank these investments based on their IRRs.

c. Why do these rankings yield mixed signals?

Reference no: EM131328702

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