Question

2 pts Question 8 The Management of Premium Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. If the company uses a 12 percent discount rate for all projects, determine which forklift system should be purchased using the net present value (NPV) approach. Year 0 Year 1 Year 2 Year 3 Otis -$3,123,450 $979,225 $1,358,886 $2,111,497 Forklifts Craigmore $2,865, 1 10 -$4,137,410 $875,236 $1,765,225 Forklifts Craigmore because its NPV is $90,605.98 Otis because its NPV is $ 337075.49 Neither Otis and Craigmore because they both have a positive NPV

Answer 1

Otis Forklift

Net present value can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$3,123,450. Indicate the initial cash flow by a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 12%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

                                                          

The net present value is $337,075.49.

Craigmore Forklift

Net present value can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$4,37,410. Indicate the initial cash flow by a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 12%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

                                                          

The net present value is $90,605.98.

Otis Forklift should be purchased since it has a higher net present value.

Hence, the answer is option b.

In case of any query, kindly comment on the solution.