NPVs and IRRs for Mutually Exclusive Projects Davis Industries must choose between a gas-powered and an electric-powered...

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NPVs and IRRs for Mutually Exclusive Projects
Davis Industries must choose between a gas-powered and anelectric-powered forklift truck for moving materials in itsfactory. Since both forklifts perform the same function, the firmwill choose only one. (They are mutually exclusive investments.)The electric-powered truck will cost more, but it will be lessexpensive to operate; it will cost $22,000, whereas the gas-poweredtruck will cost $17,500. The cost of capital that applies to bothinvestments is 12%. The life for both types of truck is estimatedto be 6 years, during which time the net cash flows for theelectric-powered truck will be $6,290 per year and those for thegas-powered truck will be $5,000 per year. Annual net cash flowsinclude depreciation expenses.
Calculate the NPV for each type of truck. Round your answers tothe nearest dollar.
Electric-powered truck $
Gas-powered truck $
Calculate the IRR for each type of truck. Round your answers totwo decimal places.
Electric-powered truck %
Gas-powered truck %
Which type of the truck should the firm purchase?
-Select-Electric-powered or Gas-powered

Answer & Explanation Solved by verified expert

3.8 Ratings (540 Votes)

aElectric powered truckNet present value is solved using a financial calculator Thesteps to solve on the financial calculatorPress the CF buttonCF0 22000 It is entered with a negative sign since it is acash outflowCash flow for each year should be enteredPress Enter and down arrow after inputting each cash flowAfter entering the last cash flow cash flow press the NPVbutton and enter the cost of See Answer

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NPVs and IRRs for Mutually Exclusive ProjectsDavis Industries must choose between a gas-powered and anelectric-powered forklift truck for moving materials in itsfactory. Since both forklifts perform the same function, the firmwill choose only one. (They are mutually exclusive investments.)The electric-powered truck will cost more, but it will be lessexpensive to operate; it will cost $22,000, whereas the gas-poweredtruck will cost $17,500. The cost of capital that applies to bothinvestments is 12%. The life for both types of truck is estimatedto be 6 years, during which time the net cash flows for theelectric-powered truck will be $6,290 per year and those for thegas-powered truck will be $5,000 per year. Annual net cash flowsinclude depreciation expenses.Calculate the NPV for each type of truck. Round your answers tothe nearest dollar.Electric-powered truck$ Gas-powered truck$ Calculate the IRR for each type of truck. Round your answers totwo decimal places.Electric-powered truck%Gas-powered truck%Which type of the truck should the firm purchase?-Select-Electric-powered or Gas-powered