Emirates is a long established company providing high quality transport for customers. It currently owns and runs 350 cars and 120 buses and has a turnover of K10 million per annum.

The current system for allocating jobs to drivers is very inefficient. This is an outsourced system contracted 2 years ago for a period of 5 years and the company pays K560,000 per year. Emirates is considering the implementation of a new computerised tracking system called Nakusanga. This will make the allocation of jobs far more efficient. The project is being appraised over five years.

The costs and benefits of the new system are set out below:

1. The central tracking system costs K2,100,000 to implement. This amount will be payable in three equal installments: one immediately, the second in one years time, and the third in two years time.

(ii) Depreciation on the new system will be provided at K420,000 per annum.

(iii) Staff will need to be trained how to use the new system. This will cost Emirates K425,000 in the first year.

(iv) If Nakusanga is implemented, revenues will rise to an estimated K11 million this year, thereafter increasing by 5% per annum (i.e. compounded). Even if Nakusanga is not implemented, revenues will increase by an estimated K200,000 per annum, from their current level of K10 million per annum.

(v) Despite increased revenues, Nakusanga will still make overall savings in terms of vehicle running costs. These cost savings are estimated at 1% of the post Nakusanga revenues each year (i.e. the K11 million revenue, rising by 5% thereafter, as referred to in note (iv)).

(vi) Six new staff operatives will be recruited to manage the Nakusanga system. Their wages will cost the company K120,000 per annum in the first year, K200,000 in the second year, thereafter increasing by 5% per annum (i.e. compounded).

(vii) Emirates will have to take out a maintenance contract for the Nakusanga system. This will cost K75,000 per annum.

(viii) Interest on money borrowed to finance the project will cost K150,000 per annum.

(ix) Emirates has some materials in stock costing k120,000.This material will be used in the implementation of Nakusangatracking system. The material have no other use in the business and it will cost k10,000 to dispose it off if it is not used on the Nakusanga.

(x) The company will need to borrow some specialist equipment and personnel from the parent company in year three. The company costs these inter-company transfers at market rates. Here the cost will be K350 000. However, these resources are actually needed in the company at that time, so they will have to seek temporary cover while they are being used in the project.

Using relevant costing principles, prepare a statement that will help you advise whether Nakusanga should be implemented or not.