ise investment Wallis Ruddy, the ess has continued to re more business estment projects and OBLEMS-SERIES B LO 10-2 Problem 10-16B Using present value techniques to evaluate alternative invest opportunities Ruddy Automobile Repair, Inc., currently has three repair shops in Boston. Wallis Rue president and chief executive officer, is facing a pleasant dilemma: the business has contin grow rapidly and major shareholders are arguing about different ways to capture more bi opportunities. The company requires a 12 percent rate of return for its investr uses the straight-line method of depreciation for all fixed assets. One group of shareholders wants to open another shop in a newly developed suburban munity. This project would require an initial investment of S480,000 to acquire all the ne equipment, which has a useful life of five years with a salvage value of $160,000. Once the begins to operate, another $120,000 of working capital would be required; it would be reco at the end of the fifth year. The expected net cash inflow from the new shop follows. Year 4 Year 1 $60,000 Year 2 $100,000 Year 3 $152,000 Year 5 $240,000 $192,000 A second group of shareholders prefers to invest $400,000 to acquire new computerized di- agnostic equipment for the existing shops. The equipment is expected to have a useful life of five years with a salvage value of $80,000. Using this state-of-the-art equipment, mechanics would be able to pinpoint automobile problems more quickly and accurately. Consequently, it would allow the existing shops to increase their service capacity and revenue by $125,000 per year. The com- pany would need to train mechanics to use the equipment, which would cost $45,000 at the beginning of the first year. Required 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. 10-2 Problem 10-17B Applying the net present value approach with and without tan considerations Ben Baxi, the president of Ben's Moving Services, Inc., is planning to spend 5640,01 trucks. He expects the trucks to increase the company's cash inflow as follows to spend $640,000 for new Planning for Capital Investments 47 Year 2 Year 1 $165,000 Year 3 Year 4 $180,000 The company's policy stipulates that all investments must cam a minimum rate of return of 10 percent. Required Round financial figures to nearest whole dollar. Compute the net present value of the proposed purchase. Should Mr. Baxi purchase the trucks? i Kimberly Hall, the controller, is wary of the cash flow forecast and points out that Mr. Baxi failed to consider that the depreciation on trucks used in this project will be tax deductible. The depreciation is expected to be $150,000 per year for the four-year period. The company's income tax rate is 30 percent per year. Use this information to revise the company's expected cash flow from this purchase. c. Compute the net present value of the purchase based on the revised cash flow forecast Should Mr. Baxi purchase the trucks