Davis Industries must choose between a gas or electric forklift to move materials around the plant. You
Question:
Davis Industries must choose between a gas or electric forklift to move materials around the plant. You cannot buy both as they perform the same function. (They are a mutually exclusive investment.) The electric forklift is priced higher but costs less to operate: $ 22,000 compared to $17,500 for the gas forklift. The cost of capital applicable to both is 12%. The company expects that both options will have a life of 6 years, during which the electric forklift will produce annual net flows of $6,290, and the gas one will produce $5,000 annually. Flows include depreciation expenses. Calculate the net present value (NPV) and the internal rate of return (IRR) of the two and decide which to recommend.
Reference book:
Corporate Finance: A Focused Approach by Ehrhardt and Brigham Second Edition
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt