1. Rundle Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Rundle Delivery recently acquired approximately $5.2 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the companys operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $640,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $290,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $106,000. Operating the vans will require additional working capital of $43,000, which will be recovered at the end of the fourth year. In contrast, Oscar Vance, the companys chief accountant, believes that the funds should be used to purchase large trucks to deliver the packages between the depots in the two cities. The conversion process would produce continuing improvement in operating savings and reduce cash outflows as follows:

Year 1	Year 2	Year 3	Year 4
165,000	321,000	398,000	437,000

The large trucks are expected to cost $720,000 and to have a four-year useful life and a $86,000 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount to $14,000. Rundle Deliverys management has established a 12 percent desired rate of return. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

A & B ) Determine the net present value and present value index for each investment alternative. (Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answers to 2 decimal places.)

		Purchase of City Vans	Purchase of Trucks
A.	Alternative 1 (NPV)
B.	Alternative 2 (PVI)

2.

Dwight Donovan, the president of Thornton Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $101,000 and for Project B are $34,000. The annual expected cash inflows are $39,015 for Project A and $11,669 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Thornton Enterprises cost of capital is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

A. Compute the net present value of each project. Which project should be adopted based on the net present value approach?

B. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?

Part A:

	Net Present Value
Project A
Project B
Which project should be adopted?

Part B:

	Internal Rate of Return %
Project A
Project B
Which project should be adopted?