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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 $21,000, whereas the gas-powered truck will cost $17,230. The cost of capital that applies to both investments is 11%. 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 $6,100 per year, and those for the gas-powered truck will be $5,300 per year. Annual net cash flows include
| Electric-powered forklift truck |
Gas-powered forklift truck |
||
| NPV | $ | $ | |
| IRR | % | % |
The firm should purchase forklift truck.
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- 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 8%, and the projects’ expected net costs are listed in the following table: What is the IRR of each alternative? What is the present value of the costs of each alternative? Which method should be chosen?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 $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. Calculate the NPV and IRR for each type of truck, and decide which to recommend. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.…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 $23,000, whereas the gas-powered truck will cost $17,100. The cost of capital that applies to both investments is 11%. 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 $6,500 per year and those for the gas-powered truck will be $4,950 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…
- 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 $21,000, whereas the gas-powered truck will cost $17,230. The cost of capital that applies to both investments is 11%. 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 $6,100 per year, and those for the gas-powered truck will be $5,300 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.Bermuda Co. must choose between 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 $110,000, whereas the gas powered truck will cost $40,000. The required rate of return that applies to both investments is 14 percent. The life for both types of truck is estimated be 12 years, during which time the net cash flows for the electric-powered truck will be $23,500 per year and those for gas-powered truck will be $10,000 per year. Calculate the NPV and IRR for each type of truck, and decide which to recommend.Isaac Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. The firm will choose only one because both forklifts perform the same function. (They are mutually exclusive investments.) The electric-powered truck will cost more but 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 18%. The life for both types of truck is estimated to be six years, during which time the net cash flows for the electric-powered truck will be $7,290 per year, and those for the gas-powered truck will be $6,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck and decide which to recommend. Compute the NPV for each truck. Compute the IRR for each truck. Compute the crossover rate. Compute the payback period for each truck. Compute the profitability index for each truck.
- Davis Industries must choose between a gas-powered and an electric-powered forklifttruck for moving materials in its factory. Since both forklifts perform the same function, the firmwill choose only one. (They are mutually exclusive investments.) The electric-powered truck willcost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-poweredtruck will cost $17,500. The cost of capital that applies to both investments is 12%. The life forboth types of truck is estimated to be 6 years, during which time the net cash flows for theelectric-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. Calculate the NPV andIRR for each type of truck, and decide which to recommend.Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since 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 percent. The life for each type 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. Required Calculate the NPV and IRR for each type of truck, and decide which to recommend.Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since 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 percent. The life for each type 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. Required Calculate the NPV for each type of truck, and decide which to recommend.
- Jaguar Holdings Company must choose between solar 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 solar truck will cost more but will be less expensive to operate; it will cost $80,000, whereas the electric-powered truck will cost $70,000. The life for both types of truck is estimated to be 10 years, during which time the net cash flows for the solar-powered truck will be $20,000 per year, and those for the electric-powered truck will be $12,000 per year. The Internal Rate of Return (IRR) for Solar = 21.41% and the Electric = 11.23% Calculate the NPV for each type of truck and decide which to recommend.Giangelo Corporation would like to venture in manufacturing a specialized tool that is required by a semi-conductor company. In order to accomplish this, it is considering two options that both require raising large amount of funds. First option (Project X) is the construction of a factory building and acquisition of machineries for an estimated cost of P30 million. The other alternative (Project Y) is the acquisition of an existing company that manufactures the same tool at a price of P50 million. In order to fund the project, the Company will have to apply for a loan from a bank and issue shares of stocks. The management contemplated a more leveraged approach by availing the 70% of the financial requirements through loan borrowing and the rest from the issuance of shares. The interest on bank loan is at 11% per annum while the issuance of shares will require return to stockholders at 8% per annum. The applicable income tax rate is 25%. Both of the projects will have estimated life of…Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a 4-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a 6-year life, and requires $115,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 11 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)