6. Equipment A has a cost of Rs.75,000 and net cash flow of Rs.20000 per year

6. Equipment A has a cost of Rs.75,000 and net cash flow of
Rs.20000 per year for six years. A substitute equipment B
would cost Rs.50,000 and generate net cash flow of
Rs.14,000 per year for six years. The required rate of
return of both equipments is 11 per cent. Calculate the IRR
and NPV for the equipments. Which equipment should be
accepted and why?

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6. Equipment A has a cost of Rs.75,000 and net cash flow of Rs.20000 per year for six years. A sub..

Answer / w.a

npv of equipment A= Rs 9610.76
npv of equipment B= Rs 9227.53

hence, equipment A should be accepted because it generates
a higher NPV value than equipment A.

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