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This question is in two photos - can you please provide answers. Thank you Management is concerned at the rate of occupational injury arising from
This question is in two photos - can you please provide answers. Thank you
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 per truck 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. Altematively, management could concrete the parking and unioading 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: 2. 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 Which option would you recommend based solely on payback period? 3. Calculate the net present value for each option, (Round to the nearest dollar) Which option would you recommend based solety on NPV? Taking all the information above into consideration (payback, net present value and any other intormation you feel relevant), which option would you recommend and why? (4 marks) Step by Step Solution
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