VEGETRON’S CFO CALLS AGAIN Minicase solution, Chapter 5 Principles of Corporate Finance, 12th Ed. R. A. Brealey, S. C. Myers and F. Allen The high-temperature process produces $110,000 per year for 5 years. The low-temperature process produces $85,000 per year for 7 years. Each costs $400,000. The NPVs (at 9%) and IRRs are: NPV IRR High-temperature +$28,000 11.7% Low-temperature +$28,000 11% The NPVs are identical. The high-temperature process has a slightly higher IRR because of its quicker payback. The CFO returns 30 minutes later: CFO: What did you find out? You: It’s a dead heat. The two projects are equally valuable. NPV is +$28,000 for each. The high-temperature process has a slightly higher DCF rate of return, but that’s typical of quick-payback projects. It doesn’t mean that the high-temperature process generates more value for the firm and its stockholders. CFO: And the book rates of returns are irrelevant? You: Yes. There’s not a single year when the book rate of return matches the true, DCF rate of return. Average book returns – for example the ratio of average income to average book investment – don’t measure the true rate of return. Book rates of return don’t help at all in making good capital investment decisions. CFO: Let’s stick with the low-temperature process. I’m not 100% confident that the high-temperature process will work. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 本文来源：https://www.wddqw.com/doc/b49d85841a5f312b3169a45177232f60ddcce785.html