Question 1

NPVs and IRRs for Mutually Exclusive Projects

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 $21,500, whereas the gas-powered truck will cost $17,960. The cost of capital that applies to both investments is 13%. 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 $6,860 per year and those for the gas-powered truck will be $4,600 per year. Annual net cash flows include depreciation expenses.

Calculate the NPV for each type of truck. Do not round intermediate calculations. Round your answers to the nearest dollar.

Electric-powered truck

Gas-powered truck

Calculate the IRR for each type of truck. Do not round intermediate calculations. Round your answers to two decimal places.

Electric-powered truck

Gas-powered truck

Question 2

Capital Budgeting Methods

Project S has a cost of $11,000 and is expected to produce benefits (cash flows) of $3,400 per year for 5 years. Project L costs $23,000 and is expected to produce cash flows of $6,900 per year for 5 years.

1. Calculate the two projects' NPVs, assuming a cost of capital of 14%. Round your answers to the nearest cent.

Project S

Project L

Calculate the two projects' MIRRs, assuming a cost of capital of 14%. Round your answers to two decimal places.

Project S

Project L

Calculate the two projects' PIs, assuming a cost of capital of 14%. Round your answers to two decimal places

Project S

Project L