Hint: A. NPV of the vans investment: $182,658.08
B. The profitability index for the trucks investment: 1.18
Year 1 $175,000
Year 2 $375,000
Year 3 $450,000
Year 4 $500,000
Round your computations to two decimal points.
A. Determine the net present value of the two investment alternatives
B. Calculate the present value index for each alternative
C. Indicate which investment alternative you would recommend. Explain your choice
PWP Operations Mailbar Sunday Killen G M Problem 10-16A Using present valor fechaiques to evaluate abermating investment opportunities Swill Delivery is a small company that transports business packages between New York and Chicago. It operates a feet of small vans that moves packages to and from a central depot within each city and wies a common carrier to deliver the packages between the depot in the two cities Swift Delivery recently acquired approximately $4 million of cash capital from its ounces, and its president, George Hay, is trying to identify the most profitable way to invent these funds. Todd Payne, the company's operations manager, believes that the money should be used to capand the fleet of city vans it a cost of $900,000. He argues that more vans would crumble the company to expand its services into new markets, thereby increasing the revenue bare. More specifically. he expects cash inflows to increase by $325.000 per year. The additional vans are capected to have an average useful life of four years and a combined salvage value of $100,000, Operating the vans will require additional working capital of $50,090, which will be recovered at the end of the fourth year. In contrast, Oscar Vance, the company's 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 proceis would produce continuing improvement in operating savings and reduce cash outflows as follows. Year1 Year 2 Your 3 Year 4 $175,090 4375000 $450000 $500.000 The large trucks are expected to cost $1,000 000 and to have a four year useful life and a $81,230 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount to $10.000, Swift Delivery's management has established a 10 percent desired rate of return. Required Round your computation to two decimal points. . Determine the net present value of the two investment sheenatives. . Calculate the prowet value indes for each alternative. . Indicate which investment alternative you would recommend. Explain your choice. MacBook Av W E R T Y O Pplayer-Ulmheducation.com Q JA CHECK FIGURES a NPV of the vans Investment: $182,858.08 b. The profitability Index for the trucks investment 1.18 Problem 10-16A Using present value techniques to evaluate shernative investment opportunities Swift 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 depol within each city and uses a common carrier to deliver the packages between the depots in the two clues. Swift Delivery recently acquired approximately $4 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 company's operations manager, believes that the money should be used to expand the fleet of city wins at a cost of $900.000. 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 $325.000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $109.000, Operating the vans will require additional working capital of $50,000, which will be recovered at the end of the fourth year. In contrast, Oscar Vance, the company's chief accountant, believes that the funds should be used to purchase lange trucks to deliver the packages between the depots in the two cities. The comersion process would produce continuing improvement in operating unings and ccduce cash outflows in follows. Your 1 Year 2 Year 3 Year 4 $175 000 5375090 $450.090 $5001000 The large trucks are expected to cost $1,090,000 and to have a four-year useful life and a $81.150 salvage value. In addition to the purchase price of the trucks, up front training costs are expected to amount to $20 000. Swift Delivery's management has established a 10 percent desired rate of return. Pare all MacBook / m 2 Q W E R T Y U O P
