Question

Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because 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 $23,000, whereas the gas-powered truck will cost $17,100. The cost of capital that applies to both investments is 11%. 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 $6,500 per year, and those for the gas-powered truck will be $4,750 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.

	Electric-powered forklift truck		Gas-powered forklift truck
NPV	$		$
IRR	%		%

Answer 1

davis industries electric power forklift truck gas powered forklift truck discount rate 5 year 11% 6 0 1.00 7 1 0.90 8 2 0.81 93 0.73 10 4 0.66 11 5 0. 59 12 6 0. 53 13 cash flow 1-23000 6500 6500 6500 6500 500 500 discounted value -23,000.00 5,855.86 5,275.55 4,752.74 4,281.75 3,857.43 3,475.17 cash flow -17100 4750 4750 4750 4750 4750 4750 discounted value -17,100.00 4,279.28 3,855.21 3,473.16 3,128.97 2,818.89 2,539.54 6 6 net present valueT 4 ,498.50 2,995.05 internal rate of return 17.55% 16.88% 20 from the net present value it is clearly can be said that the value of the electric power 21 is higher thatn gas powered forklift. Therefore it should be accepted 23 simillarly the IRR is higher of electric power forklift. Therefore it should be acceoted 24 same result from both methods

davis industries gas powered forklift truck 2 TT electric power forklift truck discount rate 5 year 11% cash flow 6 0 1 1-23000 7 1 =+B6/1. 11 6 500 8 2 =+B7/1. 11 6 500 9 3 =+B8/1. 11 6 500 10 4 =+B9/1.11 6500 11 5 =+B10/1. 11 6 500 126 =+B11/1.11 6500 discounted value =+B6 C6 = +B7'C7 =+B8'C8 = +B9'C9 =+B10'C10 = +B11'C11 =+B12 C12 cash flow - 17100 4750 4750 4750 4750 4750 4750 discounted value = +E6'B6 =+E7"B7 = +E8'B8 =+E9'B9 = +E10'B10 = +E11 B11 = +E12'B12 net present value 1 =SUM(D6:012) = SUM(F6:F12) internal rate of return IRRIC:C12) IRR(E6:E12) 20 from the ne 21 is higher th 23 similarly the 24 same resul I I