Death Star Delivery is a small company that transports Kyber crystals between Lothal and Bespin. It operates a fleet of small transport ships that moves crystals to and from a central depot within each planet and uses a common carrier to deliver the crystals between the depots on the two planets. Death Star Delivery recently acquired approximately $7.0 million of cash capital from its owners, and its president, Lando Calrissian, is trying to identify the most profitable way to invest these funds. Han Solo, the company's operations manager, believes that the money should be used to expand the fleet of transport ships at a cost of $810,000. He argues that more ships 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 $300,000 per year. The additional ships are expected to have an average useful life of four years and a combined salvage value of $102,000. Operating the ships will require additional working capital of $44,000, which will be recovered at the end of the fourth year. In contrast, Luke Skywalker, the company's chief accountant, believes that the funds should be used to purchase a freighter to deliver the crystals between the depots in the two cities. The conversion process would produce continuing improvement in operating savings and reduce cash outflows as follows. Year 3 Year 4 Year 1 $158,000 Year 2 $328,000 $410,000 $432,000 The large freighters are expected to cost $890,000 and to have a four-year useful life and a $73,000 salvage value. In addition to the purchase price of the freighters, up-front pilot training costs are expected to amount to $16,000. Death Star Delivery's management has established a 8 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 Freighter(s) Purchase of Transport Ships a. Net Present Value (NPV) b. Present Value Index (PVI)

Death Star Delivery is a small company that transports Kyber crystals between Lothal and Bespin. It operates a fleet of small transport ships that moves crystals to and from a central depot within each planet and uses a common carrier to deliver the crystals between the depots on the two planets. Death Star Delivery recently acquired approximately $7.0 million of cash capital from its owners, and its president, Lando Calrissian, is trying to identify the most profitable way to invest these funds. Han Solo, the company's operations manager, believes that the money should be used to expand the fleet of transport ships at a cost of $810,000. He argues that more ships 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 $300,000 per year. The additional ships are expected to have an average useful life of four years and a combined salvage value of $102,000. Operating the ships will require additional working capital of $44,000, which will be recovered at the end of the fourth year. In contrast, Luke Skywalker, the company's chief accountant, believes that the funds should be used to purchase a freighter to deliver the crystals between the depots in the two cities. The conversion process would produce continuing improvement in operating savings and reduce cash outflows as follows. Year 3 Year 4 Year 1 $158,000 Year 2 $328,000 $410,000 $432,000 The large freighters are expected to cost $890,000 and to have a four-year useful life and a $73,000 salvage value. In addition to the purchase price of the freighters, up-front pilot training costs are expected to amount to $16,000. Death Star Delivery's management has established a 8 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 Freighter(s) Purchase of Transport Ships a. Net Present Value (NPV) b. Present Value Index (PVI)

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter25: Taxation Of International Transactions

Section: Chapter Questions

Problem 26P

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