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a. What is the IRR of cach alternative? b. What is the present value of costs of cach alternative? Which method should be chosen?

a. What is the IRR of cach alternative? b. What is the present value of costs of cach alternative? Which method should be chosen?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q.3 The Nescafe Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two altematives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 9 percent, and the projects' expected net costs are listed below: EXPECTED NET CASH COSTS YEAR CONVEYOR FORKLIFT ($150,000) ($60,000) (33,000) (48,000) (33,000) (48,000) 3 (33,000) (48,000) (33,000) (48.000) 5 (33,000) (48,000) a. What is the IRR of cach alternative? b. What is the present value of costs of cach alternative? Which method should be chosen?
Transcribed Image Text:Q.3 The Nescafe Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two altematives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 9 percent, and the projects' expected net costs are listed below: EXPECTED NET CASH COSTS YEAR CONVEYOR FORKLIFT ($150,000) ($60,000) (33,000) (48,000) (33,000) (48,000) 3 (33,000) (48,000) (33,000) (48.000) 5 (33,000) (48,000) a. What is the IRR of cach alternative? b. What is the present value of costs of cach alternative? Which method should be chosen?
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