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We need to modernize how we move inventory around in our warehouse and will select...

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Finance

We need to modernize how we move inventory around in our warehouse and will select either a conveyor belt system or a forklift truck to handle our inventory. We must choose one, but not both, methods. (They are mutually exclusive). The conveyor belt system will cost $46,000 to install and will save us $18,000 each year for the next 5 years in operating costs. The forklift truck will cost $32,000 to purchase and will save us $14,000 each year for the next 5 years in operating costs.

a. Prepare an Excel spreadsheet to calculate $NPV, IRR%, and MIRR% at both ra=10% and ra=18% for each of these options.

b. Which option will we choose if our ra=10%? What criterion did you use to make your decision?

c. Which option will we choose if our ra=18%? What criterion did you use to make your decision?

d. Prepare a chart in Excel showing the NPV Profile for each of these options. Be sure to format

and label your chart appropriately.

e. Calculate rc%, the discount rate at which the 2 profiles cross over. What is the significance of

this rate?

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