NPVs and IRRs for Mutually Exclusive Projects
Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $21,000, whereas the gas-powered truck will cost $17,230. The cost of capital that applies to both investments is 11%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,100 per year, and those for the gas-powered truck will be $5,300 per year. Annual net cash flows include
| Electric-powered forklift truck |
Gas-powered forklift truck |
||
| NPV | $ | $ | |
| IRR | % | % |
The firm should purchase forklift truck.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
