Road Runner Delivery Company is a small firm that transports business packages between New York and Chicago. It operates a fleet of small vans and 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. Road Runner Delivery recently acquired approximately $4 million in cash capital from its owners and its president, Ray Hay, is trying to identify the most profitable way to invest these funds.

The companys operations manager believes that the money should be used to expand the fleet of city vans 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 $100,000. Operating the vans will require additional working capital of $50,000, which will be recovered at the end of the fourth year.

In contrast, the firms 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 improvements in operating savings and reduce cash outlays as follows:

Year 1	Year 2	Year 3	Year 4
$175,000	$375,000	$450,000	$500,000

The large trucks are expected to cost $1,000,000 and have a four-year useful life and an $82,250 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount to $20,000. Swift Deliverys management has established a 10 percent desired rate of return

Please answer:

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