Economic Feasibility

Glenns Electronics (GE), a small but growing company wants to introduce a new computer system for its products warehouse. The management is concerned about the instability of the current global economy and would want a quicker payback period on investment but at the same time would not want to compromise their investment opportunity cost which currently stands at 6%.

Solution 1 values are given to you to compute.

Two solutions are being considered of which Solution 2 values have already been computed for you as follows:

1. Overall NPV (Cash Flow) = $ 29,887
2. ROI = 31.7
3. Project break even occurs at 2.81 years.

For this problem,

1. [4] Complete the cost/benefit analysis spreadsheet on the next page, using the Net Present Value (NPV) method.
2. [4] Calculate the payback period and ROI, if applicable. If not applicable, make a statement why it is not applicable.
3. [2] Based on your understanding of the economic objectives of GE, offer advice to management on the choice of system (Solution 1 or Solution 2), and justify your advice.