Question
Insofo Realty Ltd is contemplating whether to develop a new accounting system or make modifications to its existing in house accounting information system to accommodate
Insofo Realty Ltd is contemplating whether to develop a new accounting system or make modifications to its existing in house accounting information system to accommodate for an increase in sales and expansion of operations into new territories. It is currently experiencing high levels of sales due to major legislative changes in the real estate industry which have led to government subsidies being available to its customers for the next five years.
a)You have been chosen as a member of the development team because of your strong accounting and finance background. You are to conduct a detailed feasibility study for Insofo Ltd and describe the role played by the feasibility study in the above scenario. Please list and describe the structure and content of the feasibility study conducted. You are to clearly state all assumptions which you make in the above scenario.
b)The initial cost outlay of the new accounting system installation is $ 1.5 million. It will give Insofo Realty a saving of $0.5 million each year over 5 years (after tax plus depreciation tax savings). Infsofo's required rate of return is 10%. Determine the economic feasibility of the new system using both the payback period and the NPV (Net present value). Clearly show all workings of values/ cash flows in a table format.
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