Davis Industries must choose between a gas-powered and an electric-powered forkl

Question

Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since 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 $21,000, whereas the gas-powered truck will cost $17,230. The cost of capital that applies to both investments is 11 percent. 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 $6,100 per year and those for the gas-powered truck will be $5,300 per year. Calculate the NPV and IRR for each type of truck, and decide which to recommend.

Calculate the NPV for each type of truck. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, 1000.88 would be entered as 1001

Explanation / Answer

a propane powered truck will still run if the power goes out over-night and cost less. depreciation on a gas model should be less. The IRR for both types of truck is the same which is 29% . But NPV of electric powered truck is greater than that of Gas powered truck. The higher NPV and low operating cost of electrict powered truck makes it attractive and recommendable.

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