Contract Manufacturing, Inc., is considering two alternativeinvestment proposals. The first proposal calls for a majorrenovation of the company’s manufacturing facility. The secondinvolves replacing just a few obsolete pieces of equipment in thefacility. The company will choose one project or the other but notboth. The cash flows associated with each project appear below andthe firm discounts project cash flow at 15%:
Year: 0 ; 1 ; 2 ; 3 ; 4 ; 5
Renovate : -$9,000,000 ; 3,000,000 ; 3,000,000 ; 3,000,000 ;3,000,000 ;Â Â 3,000,000
Replace: -$2,400,000 ; 200,000 ; 800,000 ; 200,000 ; 200,000 ;200,000
Overall, You should find conflicting recommendationsbased on various criteria. Why is this occurring?
