Question
A new inventory management system for the ABC Company could be developed at a cost of $260,000. The estimated net operating costs and estimated net
A new inventory management system for the ABC Company could be developed at a cost of $260,000. The estimated net operating costs and estimated net benefits over six years of operation would be:
COLLAPSE
Year
Estimated Net
Operating Costs
Estimated Net Benefits
Cumulative Costs
Cumulative Benefits
Benefits-Costs
PV Factor
NPV
0
$260,000
$0
$260,000
$0
-$260,000
1.000
-$260,000
1
7,000
42,000
267,000
42,000
35,000
0.870
30,450
2
9,400
78,000
276,400
120,000
68,600
0.756
51,862
3
11,000
82,000
287,400
202,000
71,000
0.657
46,647
4
14,000
115,000
301,400
317,000
101,000
0.572
57,772
5
15,000
120,000
316,400
437,000
105,000
0.497
52,185
6
25,000
140,000
341,400
577,000
115,000
0.432
49,680
Total
$341,400
$577,000
-
-
$235,600
-
$28,596
a. What would the payback period be for this investment? Would it be a good or bad investment? Why?
b. What is the ROI for this investment?
c. Assuming a 15 percent discount rate, what is this investment's NPV?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Fundamental Accounting Principles Volume I
Authors: Kermit Larson, Tilly Jensen, Heidi Dieckmann
16th Canadian edition
978-1260305821
