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

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Finance

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. Because 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 $23,000, whereas the gas-poweredtruck will cost $17,100. The cost of capital that applies to bothinvestments is 11%. 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 $6,500 per year and those for thegas-powered truck will be $4,950 per year. Annual net cash flowsinclude depreciation expenses.

a. Calculate the NPV for each type of truck. Do not roundintermediate calculations. Round your answers to the nearestdollar.

Electric-powered truck $

Gas-powered truck $

b. Calculate the IRR for each type of truck. Do not roundintermediate calculations. Round your answers to two decimalplaces.

Electric-powered truck %

Gas-powered truck %

Which type of the truck should the firm purchase?

electic-powered

gas-powered

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