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Noor Taxis Co. owns and runs 350 taxis and had sales of OMR 10 million in the last year. Noor Taxis Co. is considering introducing
- Noor Taxis Co. owns and runs 350 taxis and had sales of OMR 10 million in the last year. Noor Taxis Co. is considering introducing a new computerized taxi tracking system. The expected costs and benefits of the new computerized tracking system are as follows:
- The system would cost OMR 2,100,000 to implement.
- Depreciation would be provided at OMR 420,000 per annum.
- OMR 75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further training costs of OMR 425,000 would be required in the first year if the new system is implemented.
- Revenue are expected to rise to OMR 11 million in Year 1 if the new system is implemented, thereafter increasing by 5% per annum. If the new system is not implemented, revenue would be expected to increase by OMR 200,000 per annum.
- Despite increased revenue, savings in vehicle running costs are expected as a result of the new system. These are estimated at 1% of total revenue.
- Six new members of staff would be recruited to manage the new system at a total cost of OMR 120,000 per annum.
- Noor Taxis Co. would have to take out a maintenance contract for the new system at a cost of OMR 75,000 per annum for five years.
- Interest on money borrowed to finance the project would cost OMR 150,000 per annum.
- Noor Taxis Co.'s cost of capital is 10% per annum.
- The system would cost OMR 2,100,000 to implement.
- Depreciation would be provided at OMR 420,000 per annum.
- OMR 75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further training costs of OMR 425,000 would be required in the first year if the new system is implemented.
- Revenue are expected to rise to OMR 11 million in Year 1 if the new system is implemented, thereafter increasing by 5% per annum. If the new system is not implemented, revenue would be expected to increase by OMR 200,000 per annum.
- Despite increased revenue, savings in vehicle running costs are expected as a result of the new system. These are estimated at 1% of total revenue.
- Six new members of staff would be recruited to manage the new system at a total cost of OMR 120,000 per annum.
- Noor Taxis Co. would have to take out a maintenance contract for the new system at a cost of OMR 75,000 per annum for five years.
- Interest on money borrowed to finance the project would cost OMR 150,000 per annum.
- Noor Taxis Co.'s cost of capital is 10% per annum.
Determine the relevant cash flows associated with the proposed project.
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