FI515 Financial Management: Week 5 10-9 Davis Industries must choose between

FI515 Financial Management

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. These are mutually exclusive investments. The electric powered truck will cost more but it will be less expensive to operate. It will cost $22,000 whereas the gas powered truck will cost $17,500. The cost of the capital applies to both investments is 12%. 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 $6,290 per year and those the gas powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses.

Calculate the NPV and IRR for each type of truck and decide which to recommend.
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