Management is concerned at the rate of occupational injury arising from sprains and strains sustained by drivers exiting trucks on uneven ground in

the loading yard. These trip, slip and fall incidents result in an average $$55,000$ per year in injury management and workers' compensation costs. Two

options for mitigating the risk of injury have been identified.

Option $1.$ Management could replace the two existing $20-$year$-$old trucks with two Argosy Freightliners. The Argosy's safer access and egress design $($swing out staircase$)$ is expected to

reduce the risk of trips and falls, and thus knee, ankle and back injuries by $95\%.$

The purchase cost for each new vehicle is expected to be $$94,000$ plus $$1,400$ transfer costs.

The company could sell the existing trucks for $$10,000$ each.

The new trucks are also more fuel efficient and expected to produce fuel and maintenance cost savings of $$3,300$ per year.

The new trucks will also incur cheaper insurance and registration costs, with a $$600$ initial saving per truck in Year $1,$ although this saving will reduce as the truck ages, with each year's

insurance savings calculated at $10\%$ less than the previous year.

Option $2.$ Alternatively, management could concrete the parking and unloading area to provide a level surface. This is expected to cost $$65,000$ and is likely to reduce the incidence of

injury by $55\%.$

The company has a required rate of return of $8\%$ on capital investment projects. $($Hint: Ignore depreciation and tax$).$

Required:Identify the annual cashflows for each option in the table below $($Round to the nearest whole dollar. You can use minus signs for Q$5$ if needed$).$

Calculate the cumulative cashflows and the payback period for each option. $($Round to the nearest whole dollar, and nearest whole month$)$Payback period for Option $1$ is

years and

month$($s$)$

Payback period for Option $2$ is

years and

month$($s$)$

Which option would you recommend based solely on payback period?

Calculate the net present value for each option. $($Round to the nearest dollar$)$

NPV for Option $1$ is a

of $

NPV for Option $2$ is a

of $

Which option would you recommend based solely on NPV$?$