Jason Company provides weather and climate forecasts to almost 100 firms in the northwestern states of Washington, Oregon, and Idaho. New technology is available that should improve forecast accuracy anywhere from 10 to 15 percentage points.

Required:

1. What information is likely to be most difficult to estimate in conjunction with this investment decision?

2. Which capital budgeting decision model is the most appropriate for making this decision? Why?

Perhaps the most difficult piece of data to calculate will be the revenue the investment will generate. What dollar impact will increased accuracy have on current client revenue? Can we raise the rates we charge users of weather forecasts? How attractive is increased accuracy in generating new clients?

2. Beyond answering the preceding questions, either a net present value (NPV) analysis or internal rate of return (IRR) calculation would be appropriate. If the technology can be purchased in segments, a value chain analysis could be used to verify the results of an NPV analysis. Since we need addable figures dealing with multiple projects, NPV would be used for time-valued analysis.