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
