Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Foodmates, an online food delivery company, with a MARR of 7% is deciding to add new features to their application. The CTO of the company

Foodmates, an online food delivery company, with a MARR of 7% is deciding to add new features to their application. The CTO of the company limited the decision to only one of the three potential options and decided not to invest more than $30,000 out of the company cash on the app as the initial investment. Remaining capital for upgrades can be obtained by getting a bank loan with 8% interest rate. (Payable during the planning horizon with EOY payments)

Three potential options are summarized in the following:

Smarter notifications: Initial investment of $550,000 for R&D and an operating cost of $50,000 per year to maintain the smarter notifications. After 10 years, there is going to be another R&D program to make sure it is working correctly, which is going to cost $150,000. This feature is expected to increase the sale by 9,000 orders for all years.

New design: Initial investment of $210,000 and maintaining cost of $40,000 per year. The increase in the order starts from 2,200 orders in year 1 and as people get familiar with this design, demand will increase by 150 extra order every year.

Not installing any new feature. There is a maintaining cost of $55,000 per yearAssume the lifetime of alternatives to be 20 years and each order has a benefit of $15.

Determine the best alternative using:

a) IRR and show the sequence of alternatives being assessed

b) ERR and show the sequence of alternatives being assessed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions