Question

Part C: Enter your discussion below using full sentences. Should the company invest in the "city vans" (Option #1) or the "large trucks (Option #2)? which alternative would you recommend on a quantitative basis and why? Full sentences, labels and proper grammar are required

Answer 1

SPEEDY DELIVERY,INC. Net Present Value Calculations 12 13 14 15 16 17 18 19 20 21 Minimum Desired Rate of Return ;10% Alternative 1; Cash Inflows Exact Table Value Amount Present Value Annual Cash Inflows Salvage Value Working Capital Recovery Total Cash Inflows $ 260,000 80,000 40,000 3.169865 $ 824,164.90 54,641.04 27,320.52 906,126.46 0.683013 0.683013 Cash Outflows Cost of Vans Working Capital Increase Net Present Value (NPV) 23 24 25 26 27 28 29 30 31 32 (720,000.00) 40,000.00 $146,126.46 Alternative 2; Cash Inflows Exact Table Value Amount Present Value Year 1 Year 2 Year 3 Year 4 Salvage Value Total Cash Inflow 140,000 300,000 360,000 400,000 65,000 0.909091 $ 127,272.74 0.826446 S 247,933.80 0.751315 S 270,473.40 0.683013 S 273,205.20 0.683013 S 44,395.85 963,280.99 35

37 38 39 40 41 42 43 b Cash Outflows Cost of Trucks Trainng Cost Net Present Value (NPV) (800,000) (16,000) 147,280.99 Present Value Indexes; Alternative 1; Alternative 2; 1.19 1.18 45 46 47 48 49 50 51 52 Company should invest in "Large Trucks" (Option 2).I would recommend Option 2 as it helps in reductionof cash outflows more than Option 1