LI 7 37 Franklin 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 Franklin Delivery recently acquired approximately $61 milion 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 feet of city vans at a cost of $750,000 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 $300,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of 592.000. Operating the vans will requre additional working capital of $40,000, 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 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 1154,000 Year 5447,00 The large trucks are expected to cost $830,000 and to have a four year useful life and a $72.000 salvage value in addition to the purchase price of the truck up front training costs are expected to amount to $12.000 Franklin Delivery's management has established a 14 percent desired rate of return of Stand By Of Use appropriate factors from the tables provided) Year 1 $164, Bee Year 2 $319,800 Year 3 5395,000 Year 4 $447,080 The large trucks are expected to cost $830,000 and to have a four-year useful life and a $72,000 salvage value. In addition to the purchase price of the trucks, up front training costs are expected to amount to $12,000. Franklin Delivery's management has established a 14 percent desired rate of return (PV of S1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required 6.&b. Determine the net present value and present value index for each investment alternative (Round your intermediate calculations and final answers to 2 decimal places. Enter your answer in whole dollars and not in millions.) Purchase of City Purchase or Vans Trucks a Net Present Value (NPV) b. Present Value Index (PVI)
