Texn plc is a clothes retailer with shops located throughout the UK. It has not suffered as much as some other retailers during the global pandemic, but the board of directors believes that they need to make changes to the way the business operates due to the shift in the way that people are now buying clothes. The Operations Director has proposed that they retain their existing shops as they are still profitable, but also invest in a fleet of vehicles that would allow them to offer their online customers same day delivery of clothes and collection of returns. Four operations teams would be set up, with each one managing online sales and delivery for a different part of the country.

The Operations Director's proposal suggests that implementing the IT system necessary to run this improved online operation could be completed within 6 months and that the vehicles could be acquired and drivers recruited in the same period. She noted that the general retailer, Sogra, increased its sales by 50% per year for three years after introducing same day delivery. The proposal also pointed out that none of Texn's key competitors offer a same day delivery service and so, if the investment was made allowing them to do this, then Texn would be certain to gain market share.

The Operations Director has produced the following forecast incremental cash flows for the proposal:

Time (years) E'000 O 1 2 3 4 5 Sales 700 1,050 1,575 2,360 2,360 Variable cost (245) (315) (425) (614) (590) Operating fixed (100) (100) (150) (150) (140) cost Marketing (300) (200) (100) (50) (50) New vehicles (2,000) New IT system (600)Appendix A - selected discount factors Years 2 3 4 5 5% 0.952 0.907 0.864 0.823 0.784 10% 0.909 0.826 0.751 0.683 0.621 15% 0.870 0.756 0.658 0.572 0.497 20% 0.833 0.694 0.579 0.482 0.402