Burger World is considering setting up an automated ordering system. The ordering system will allow Burger World to permanently replace five employees for annual (and permanent) cost savings of $100,000.

Questions

a) If the automation system costs 1,000,000, what is the return on investment?

b) If the cost of the system is 2,000,000, what will be the rate of return?

c) If the government introduces an investment tax credit that allows firms to deduct 10% of their investment from tax liability, what would be the rate of return if the system cost $1,000,000?

d) If Burger World has to pay 8% to borrow the funds to buy the system, how much is the maximum he has to pay for the system? Suppose there is no investment tax credit.