Stuart 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. Stuart Delivery recently acquired approximately $5.9 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 vans at a cost of $630,000. 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 $270,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $102,000. Operating the vans will require additional working capital of $47,000, 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 $152,000 Year 2 $318,000 Year 3 $409,000 Year 4 $445,000 The large trucks are expected to cost $710,000 and to have a four-year useful life and a $74,000 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount to $17,000. Stuart Delivery's management has established a 10 percent desired rate of return. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a.&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 Vans $ 376,600.47 Purchase of Trucks a. Net Present Value (NPV) b. Present Value Index (PVI) Daryl Kearns saved $250,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $192,500. The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,660 102,700 Year 2 $ 58, 770 109,550 Year 3 $78,920 16,600 Year 4 $101,450 14,100 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? b. Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach? Complete this question by entering your answers in the tabs below. Required A Required B Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? (Round your intermediate calculations and final answer to two decimal places.) Net Present Value Opportunity 1 Opportunity 2 Which opportunity should be chosen?
