The Chihiro Co. is considering two investments to move materials and supplies around its factory: 1) a conveyor belt system; and 2) a fleet of forklift trucks. The initial costs of each approach today, and the future annual cash operating costs for each investment for the following five years (the estimated useful life of each investment, after which they will be worth nothing). are as follows (hint: all of these numbers represent costs, i.e., cash outlays): Assume the appropriate required rate of return to use in analyzing these cash flows - 10%. TIME 0 1 2 3 4 5 ANNUAL COST, CONVEYER $500,000 $120,000 $120,000 $120,000 $120,000 $20,000 ANNUAL COST, FORKLIFTS $200,000 $160,000 $160,000 $160,000 $160,000 $160,000 A) What is the IRR of each alternative? Hint: what are the signs of each of the cash flows? B) What is your recommendation for the best investment for the company? Why? I

The Chihiro Co. is considering two investments to move materials and supplies around its factory: 1) a conveyor belt system; and 2) a fleet of forklift trucks. The initial costs of each approach today, and the future annual cash operating costs for each investment for the following five years (the estimated useful life of each investment, after which they will be worth nothing). are as follows (hint: all of these numbers represent costs, i.e., cash outlays): Assume the appropriate required rate of return to use in analyzing these cash flows - 10%. TIME 0 1 2 3 4 5 ANNUAL COST, CONVEYER $500,000 $120,000 $120,000 $120,000 $120,000 $20,000 ANNUAL COST, FORKLIFTS $200,000 $160,000 $160,000 $160,000 $160,000 $160,000 A) What is the IRR of each alternative? Hint: what are the signs of each of the cash flows? B) What is your recommendation for the best investment for the company? Why? I

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 2STP

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