Solution a & b:
Computation of NPV - Investment in VAN (Alternative 1) | ||||
Particulars | Period | PV Factor | Amount | Present Value |
Cash outflows: | ||||
Cost of VAN | 0 | 1 | $820,000.00 | $820,000.00 |
Working capital | 0 | 1 | $32,000.00 | $32,000.00 |
Present Value of Cash outflows (A) | $852,000.00 | |||
Cash Inflows | ||||
Annual increase in Cash Inflows: | ||||
Year 1 | 1 | 0.877193 | $330,000.00 | $289,473.69 |
Year 2 | 2 | 0.769468 | $330,000.00 | $253,924.44 |
Year 3 | 3 | 0.674972 | $330,000.00 | $222,740.76 |
Year 4 | 4 | 0.592080 | $330,000.00 | $195,386.40 |
Salvage Value | 4 | 0.592080 | $108,000.00 | $63,944.64 |
Recovery of Working capital | 4 | 0.592080 | $32,000.00 | $18,946.56 |
Present Value of Cash Inflows (B) | $1,044,416.49 | |||
Net Present Value (NPV) (B-A) | $192,416.49 |
Computation of NPV - Investment in Truck (Alternative 2) | ||||
Particulars | Period | PV Factor | Amount | Present Value |
Cash outflows: | ||||
Cost of Truck | 0 | 1 | $900,000.00 | $900,000.00 |
Upfront training cost | 0 | 1 | $19,000.00 | $19,000.00 |
Present Value of Cash outflows (A) | $919,000.00 | |||
Cash Inflows | ||||
Annual increase in Cash Inflows: | ||||
Year 1 | 1 | 0.877193 | $162,000.00 | $142,105.27 |
Year 2 | 2 | 0.769468 | $310,000.00 | $238,535.08 |
Year 3 | 3 | 0.674972 | $401,000.00 | $270,663.77 |
Year 4 | 4 | 0.592080 | $444,000.00 | $262,883.52 |
Salvage Value | 4 | 0.592080 | $79,000.00 | $46,774.32 |
Present Value of Cash Inflows (B) | $960,961.96 | |||
Net Present Value (NPV) (B-A) | $41,961.96 |
Computation of Present Value Index | ||
Particulars | Alternative 1 (Van) | Alternative 2 (Truck) |
Present Value of Cash Inflows | $1,044,416.49 | $960,961.96 |
Initial Cash Outflows | $852,000.00 | $919,000.00 |
Present Value Index (PV of Cash Inflows / PV of cash outflows) | 1.23 | 1.05 |
Vernon Delivery is a small company that transports business packages between New York and Chicago. It...
Vernon 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. Vernon Delivery recently acquired approximately $7.0 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds....
Jordan 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.
Jordan Delivery recently acquired approximately $6.2 million of
cash capital from its owners, and its president, George Hay, is
trying to identify the most profitable way to invest these funds....
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packages between New York and Chicago it operates a fleet of small
vans that move packages to and from a central depot within each
city and uses a common carrier to deliver the packages between the
Depot it's in the two cities. Rundle delivery recently acquired
approximately 6.6 million of cash capital from its owners and his
president George Hay is trying to identify the most profitable way
to invest these...
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