You need to compare the benefits and costs of the existing technology and equipment with the proposed technology and equipment. For cash flow and NPV comparison you may adopt an incremental analysis (i.e., differential analysis) or an isolation approach (holistic analysis).
Capital Budgeting And Project Evaluation
Evaluation of capital expenditure Project: For evaluation of Capital budgeting of this project we have considered the Net present value method (NPV) and the Internal rate of Return method (IRR). We would thus require calculating the sum of present value of all future cash inflows and sum of present value of cash outflow. Since we have two scenarios the Current technology and the Proposed changed technology we would arrive at the cash outflow and cash inflow of both the scenarios to effectively compare the two (Shapiro, 2004).
The decision would be based on the fact that the sum of present value of cash outflows should be greater than the sum of the present value of cash inflows to make the project viable and considerable.