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ACC - Fast Delivery Company




Question;Fast Delivery Company;Fast Delivery is a small company that transports business;packages betweenNew York andChicago. 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.;Fast Delivery recently acquired approximately $6million of cash capital from it;owners, and its president Don, is trying to identify the most profitable way to;invest these funds.;One manager believes that the money should be used to expand the fleet of city;vans at a cost of $720.000. 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 inflow to increase by $280.00 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 $40,000 which will be recovered at the end of the fourth;year.;In contrast, the company chief;accountant, believes that the funds should be used to purchased large trucks to;deliver the package between the depots in the two cities. The conversion;process would produce continuing improvement in operating savings with;reductions in cash outflow as the following.;Year 1 $160,000;Year 2 $320,000;Year 3 $400,000;Year 4 $440,000;The large trucks are expected to cost $800,000 and to have a;four-year useful life and a $80,000 salvage value. In additional to the;purchase price of the trucks, up-front training cost are expected to amount to;$16,000. Fast Delivery?s management has established a 16 percent desired rate;of return.;Required;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 the choice.


Paper#41531 | Written in 18-Jul-2015

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