The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives 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 7%, and the projects' expected net costs are listed in the following table: Expected Net Cost Year Conveyor Forklift 0 -$500,000 -$200,000 1 -120,000 -160,000 2 -120,000 -160,000 3 -120,000 -160,000 4 -120,000 -160,000 5 -20,000 -160,000 What is the IRR of each alternative? The IRR of alternative 1 is -Select-undefined 5% 7% 9% Item 1 . The IRR of alternative 2 is -Select-undefined 5% 7% 9% Item 2 . What is the present value of costs of each alternative? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any. Alternative 1: $ Alternative 2: $ Which method should be chosen? -Select-IRR methodPV methodItem 5 should be chosen.
The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives 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 7%, and the projects' expected net costs are listed in the following table:
| Expected Net Cost | ||||
| Year | Conveyor | Forklift | ||
| 0 | -$500,000 | -$200,000 | ||
| 1 | -120,000 | -160,000 | ||
| 2 | -120,000 | -160,000 | ||
| 3 | -120,000 | -160,000 | ||
| 4 | -120,000 | -160,000 | ||
| 5 | -20,000 | -160,000 |
- What is the
IRR of each alternative?The IRR of alternative 1 is -Select-undefined 5% 7% 9% Item 1 .
The IRR of alternative 2 is -Select-undefined 5% 7% 9% Item 2 .
- What is the
present value of costs of each alternative? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any.Alternative 1: $
Alternative 2: $
Which method should be chosen?
-Select-IRR methodPV methodItem 5 should be chosen.
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