Cab Co. owns and runs 350 taxis and had sales of $10 million in the last year. Cab Co. is considering introducing a new computerized taxi tracking system. 

The expected costs and benefits of the new computerized tracking system are as follows:
(i) The system would cost $2 100 000 to implement.
(ii) Depreciation would be provided at $420 000 per annum.
(iii) $75 000 has already been spent on staff training in order to evaluate the potential of the new system.
Further training costs of $425 000 would be required in the first year if the new system is implemented.
(iv) Sales are expected to rise to $11 million in year 1 if the new system is implemented, thereafter increasing by 5 percent per annum. If the new system is not implemented, sales would be expected to increase by $200 000 per annum.
(v) Despite increased sales, savings in vehicle running costs are expected as a result of the new system.
These are estimated at 1 percent of total sales.
(vi) Six new members of staff would be recruited to manage the new system at a total cost of $120 000 per annum.
(vii) Cab Co. would have to take out a maintenance contract for the new system at a cost of $75 000 per annum for five years.

(viii) Interest on money borrowed to finance the project would cost $150 000 per annum.
(ix) Cab Co.’s cost of capital is 10 percent per annum.

Required:
(a) State whether each of the following items are relevant or irrelevant cash flows for a net present value (NPV) evaluation of whether to introduce the computerized tracking system.
(i) Computerized tracking system investment of $2 100 000;
(ii) Depreciation of $420 000 in each of the five years;
(iii) Staff training costs of $425 000;
(iv) New staff total salary of $120 000 per annum;
(v) Staff training costs of $75 000;
(vi) Interest cost of $150 000 per annum.  (5 marks)
(b) Calculate the following values if the computerized tracking system is implemented.
(i) Incremental sales in year 1;
(ii) Savings in vehicle running costs in year 1;
(iii) Present value of the maintenance costs over the life of the contract.