Question: T. Ward and Company has been presented with an investment opportunity which will yield end-of-year cash flows of 300,000 dollars per year in Years 1 through 4, $350,000 in Years 5 through 9, and 400,000 dollars in Year 10. This investment will cost TW & C 1,500,000 dollars today; its cost of capital is ten percent.
Compute the NPV of this proposed investment.
Davis Industries must choose between a gas powered and electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will only choose one. [They are mutually exclusive investments.] The electric-powered truck will cost more, but it will be less expensive to operate; it will cost 22,000, dollars whereas the gas-powered truck will cost 17,500 dollars. The cost of capital for both is twelve percent. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric truck will be 6290 dollars per year and for the gas truck, 5000 dollars per year. Yearly net cash flows include depreciation. Compute the NPV and IRR for each truck, & decide which to recommend.