Mutually Exclusive Projects

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

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NPVs and IRRs for Mutually Exclusive Projects

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 invest- ments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will  cost $22,000,  whereas the gas-powered truck  will  cost $17,500. The cost of capital that applies to both investments is 12 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 $6,290  per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate  the NPV  and IRR  for each type of truck, and decide which to recommend

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