Problem 10-9 NPVs and IRRs for Mutually Exclusive Projects Davis Industries must choose between a...
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Problem 10-9 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. Since 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 $21,500, whereas the gas-powered truck will cost $17,960. The cost of capital that applies to both investments is 13%. 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 $6,860 per year and those for the gas-powered truck will be $4,600 per year. Annual net cash flows include depreciation expenses.
Calculate the NPV for each type of truck. Round your answers to the nearest dollar.
Electric-powered truck
$
Gas-powered truck
$
Calculate the IRR for each type of truck. Round your answers to two decimal places.
Electric-powered truck
%
Gas-powered truck
%
Which type of the truck should the firm purchase? Electric or gas powered?
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