PV of Costs - The Aubey Coffee Company is evaluating the within distribution sys
ID: 2629791 • Letter: P
Question
PV of Costs - The Aubey Coffee Company is evaluating the within 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 sosts, and (2) several forklift trucks, which cost less but ahve considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will ahve no effect on the overall revenues of the project. The cost of capital is 7% and the projects expected net costs are: Conveyor: Year 0 = -$500,000, Years 1-5 = -$120,000; Forklift: Year 0 = -$200,000, Years 1-5 =- $160,000. What is the IRR of each alternative? Method 1 =; Method 2 =. b.) What is the present value of costs for each alternative? Round your answers to teh nearest dollar, if necessary. Enter your answers as a whole number. For example, do not enter 1,000,000 as 1 million. Which method should be chosen? Please provide thorough calculations so I can learn thank you.
Explanation / Answer
The same question was resolved before with different figures. Please input your figure to get your answer. Let me know if you face any issue. Please rate if I succeeded in helping you.
old question
The Cordell 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 required rate of return for the plant is 9 percent, and the projects' expected net costs are listed in the following table:
Year Conveyor Forklift
0 $(300,000) $(120,000) A) what is the present value of cost of each
1 (66,000) (96,000) alternative? Which method should be chose
2 (66,000) (96,000) B) what is the IRR of each alternative?
3 (66,000) (96,000)
4 (66,000) (96,000)
5 (66,000) (96,000)
answer
PC(A) = 300000+66000(1.09^5 -1)/(0.09*1.09^5) = 556716.98 ($)
PC(B) = 120000+ 96000(1.09^5-1)?(0.09*1.09^5) = 493406.52 ($)
a)
HENCE, ALTERNATIVE B SHOULD BE CHOSEN AS PRESENT COST OF
ALT. B IS LOWER THAN THAT OF ALT. A .
b)
As there are only costs from t= 0 to t = 5, it may not be possible to calculate IRR. At IRR< NPV = 0 which is not possible here.
Please rate if I succeeded in helping you.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.