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,
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 $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that 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 for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses.
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Calculate the NPV for each type of truck. Do not round intermediate calculations. Round your answers to the nearest dollar.
Electric-powered forklift truck: $
Gas-powered forklift truck: $
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Calculate the IRR for each type of truck. Do not round intermediate calculations. Round your answers to two decimal places.
Electric-powered forklift truck: %
Gas-powered forklift truck: %
Which type of the truck should the firm purchase? The firm should purchase -Select-electric-poweredgas-poweredItem 5 forklift truck.
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