3.

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 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.

	Electric-powered forklift truck		Gas-powered forklift truck
NPV	$		$
IRR	%		%

The firm should purchase -Select-electric-poweredgas-poweredItem 5 forklift truck.

4.

Capital Budgeting Methods

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years.

Calculate the two projects' NPVs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent.

Project S: $

Project L: $

Which project would be selected, assuming they are mutually exclusive?

Based on the NPV values, -Select-Project SProject LItem 3 would be selected.

Calculate the two projects' IRRs. Do not round intermediate calculations. Round your answers to two decimal places.

Project S: %

Project L: %

Which project would be selected, assuming they are mutually exclusive?

Based on the IRR values, -Select-Project SProject LItem 6 would be selected.

Calculate the two projects' MIRRs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two decimal places.

Project S: %

Project L: %

Which project would be selected, assuming they are mutually exclusive?

Based on the MIRR values, -Select-Project SProject LItem 9 would be selected.

Calculate the two projects' PIs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to three decimal places.

Project S:

Project L:

Which project would be selected, assuming they are mutually exclusive?

Based on the PI values, -Select-Project SProject LItem 12 would be selected.

Which project should actually be selected?

-Select-Project SProject LItem 13 should actually be selected.