Problem:
Davis Industries must choose between a gas-powered and an electric -powered fork-lift truck for moving materials in its factory. Since both forklifts perform the same function, the firmwill choose only one.
The electric truck will cost more but cost less to operate. Cost is $22,00 for the electric and the gas powered is $17,500. The cost of capital that applies to both is 12%. The life of both is 6 years, 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 the IRR for each type of truck, and decide which to recommend.