Company must choose between a gas powered or electric powered forklift truck. El
ID: 2642787 • Letter: C
Question
Company must choose between a gas powered or electric powered forklift truck. Electric truck will cost more but less expensive to operate its price is $21,000 the gas powered is $17,960. Cost of capital applied to both at 13%. Life expectancy for both trucks estimated at six years, during time net cash flow will be $6,860 per year for electric truck and $4,600 per year for gas truck. Annual net includes depreciation expenses. Need NPV for each truck and IRR. What truck should they purchase? Company must choose between a gas powered or electric powered forklift truck. Electric truck will cost more but less expensive to operate its price is $21,000 the gas powered is $17,960. Cost of capital applied to both at 13%. Life expectancy for both trucks estimated at six years, during time net cash flow will be $6,860 per year for electric truck and $4,600 per year for gas truck. Annual net includes depreciation expenses. Need NPV for each truck and IRR. What truck should they purchase?Explanation / Answer
Statement showing cash flows Electric Truck Gas truck Particulars Time PVF Amount PV Amount PV Cash Outlows - 1.0000 (21,000.00) (21,000.00) (17,960.00) (17,960.00) PV of Cash Outflows (21,000.00) (17,960.00) Cash Inflows 1.00 0.8850 6,860.00 6,070.80 4,600.00 4,070.80 Cash Inflows 2.00 0.7831 6,860.00 5,372.39 4,600.00 3,602.47 Cash Inflows 3.00 0.6931 6,860.00 4,754.32 4,600.00 3,188.03 Cash Inflows 4.00 0.6133 6,860.00 4,207.37 4,600.00 2,821.27 Cash Inflows 5.00 0.5428 6,860.00 3,723.33 4,600.00 2,496.70 Cash Inflows 6.00 0.4803 6,860.00 3,294.99 4,600.00 2,209.47 PV of Cash Inflows - 27,423.19 18,388.73 NPV 6,423.19 428.73 Statement showing cash flows Gas truck Particulars Time PVF Amount PV Cash Outlows - 1.0000 (21,000.00) (21,000.00) PV of Cash Outflows (21,000.00) Cash Inflows 1.00 0.81 6,860.00 5,557.81 Cash Inflows 2.00 0.66 6,860.00 4,502.80 Cash Inflows 3.00 0.53 6,860.00 3,648.06 Cash Inflows 4.00 0.43 6,860.00 2,955.57 Cash Inflows 5.00 0.35 6,860.00 2,394.53 Cash Inflows 6.00 0.28 6,860.00 1,939.99 PV of Cash Inflows - 20,998.76 NPV (1.24) IRR = 23.43 % Statement showing cash flows Electric Truck Particulars Time PVF Amount PV Cash Outlows - 1.0000 (17,960.00) (17,960.00) PV of Cash Outflows (17,960.00) Cash Inflows 1.00 0.88 4,600.00 4,040.40 Cash Inflows 2.00 0.77 4,600.00 3,548.88 Cash Inflows 3.00 0.68 4,600.00 3,117.16 Cash Inflows 4.00 0.60 4,600.00 2,737.95 Cash Inflows 5.00 0.52 4,600.00 2,404.88 Cash Inflows 6.00 0.46 4,600.00 2,112.32 PV of Cash Inflows - 17,961.59 NPV 1.59 IRR = 13.85%
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