Name: The Chihiro Co. is considering two investments to move materials and supplies around its factory: 1) a conveyor belt system; and 2) a fleet of forklift trucks. The initial costs of each approach today, and the future annual cash operating costs for each investment for the following five years (the estimated useful life of each investment, after which they will be worth nothing), are as follows (hint: all of these numbers represent costs, i.e., cash outlays): Assume the appropriate required rate of return to use in analyzing these cash flows = 10%. Problem Set 7 TIME ANNUAL COST, CONVEYER ANNUAL COST, FORKLIFTS 0 $200,000 1 $160,000 $160,000 2 $160,000 $160,000 $160,000 4 5 $500,000 $120,000 $120,000 $120,000 $120,000 $20,000 A) What is the IRR of each alternative? Hint: what are the signs of each of the cash flows? B) What is your recommendation for the best investment for the company? Why?

The Chihiro Co. is considering two investments to move materials and supplies around its factory: 1) a conveyor belt system; and 2) a fleet of forklift trucks. The initial costs of each approach today, and the future annual cash operating costs for each investment for the following five years (the estimated useful life of each investment, after which they will be worth nothing), are as follows (hint: all of these numbers represent costs, i.e., cash outlays): Assume the appropriate required rate of return to use in analyzing these cash flows =10%. A) What is the IRR of each alternative? Hint: what are the signs of each of the cash flows? B) What is your recommendation for the best investment for the company? Why