Answer:
Electric powered truck:
NPV = $5,923.19
IRR = 22.43
Gas powered truck
NPV = $428.73
IRR = 13.85%
The electric powered truck would be chosen because it has the higher NPV and IRR
Explanation:
The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.
the net present value is the present value of after tax cash flows from an investment less the amount invested.
The IRR and NPV can be calculated using a financial calculator;
For the gas powered truck :
Cash flow in year 0 = $-17,960
Cash flow each year from year one to six = $4,600
I = 13%%
NPV = $428.73
IRR = 13.85%
For the electric powered truck:
Cash flow in year 0 = $-21,500
Cash flow each year from year one to six = $6,860
I = 13%%
NPV = $5,923.19
IRR = 22.43
The electric powered truck would be chosen because it has the higher NPV and IRR
To find the NPV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
To find the IRR using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
I hope my answer helps you
