Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781337587563
Author: MOYER, R. Charles; McGuigan, James R.; Rao, Ramesh P.
Publisher: Cengage Learning
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Chapter 10.A, Problem 3P
Summary Introduction
To determine: The best cooling unit.
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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 7%, and the projects' expected net costs are listed in the following table:
Expected Net Cost
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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
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The IRR of alternative 1 is -Select-undefined 5% 7% 9% Item 1 .
The IRR of…
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 12%, and the projects' expected net costs are listed in the following table:
a. What is the IRR of each alternative?
The IRR of alternative 1 is -Select-
Year
0
1
2
3
4
5
-Select-
Expected Net Cost
Forklift
-$200,000
-160,000
-160,000
-160,000
-160,000
-160,000
Conveyor
-$500,000
-120,000
-120,000
-120,000
-120,000
-20,000
The IRR of alternative 2 is-Select-
b. What is the present value of costs of each alternative? Do not round Intermediate calculations. Round your answers to the nearest…
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