Problem 10-20 Present Value of Costs

The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost, but low annual operating costs, and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 11%, and the projects' expected net costs are listed in the table:

	EXPECTED NET COST
Year	Conveyor	Forklift
0	-$500,000	-$200,000
1	-120,000	-160,000
2	-120,000	-160,000
3	-120,000	-160,000
4	-120,000	-160,000
5	-20,000	-160,000

What is the IRR of each alternative? Method 1 -Select-undefined11913Item 1 Method 2 -Select-undefined11913Item 2

What is the present value of costs of each alternative? Round your answers to the nearest dollar, if necessary. Enter your answers as a whole numbers. For example, do not enter 1,000,000 as 1 million. Method 1 $ Method 2 $ Which method should be chosen?

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Problem 10-22 Economic Life

The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given below. The company's cost of capital is 12.5 percent.

Year	Annual Operating Cash Flow		Salvage Value
0	-$22,500		$22,500
1	6,250		17,500
2	6,250		14,000
3	6,250		11,000
4	6,250		5,000
5	6,250		0

What is the optimal number of years to operate the truck?