You work in the Finance Department of the supermarket chain Super. The company is planning to expand its business by offering online orders and home delivery. The CEO and CFO need your expertise to decide whether it would be beneficial to pursue the new business project.

The project will have a lifetime of 5 years and the top management will decide after these 5 years if this service will be offered permanently. Super plans to spend 750,000 now on advertising and 80,000 during the first year of the project.

To set up the new service, Super has to invest in a fleet of delivery vans, the web portal, warehouse capacity, delivery crates etc. This initial investment will be approximately 2,250,000. It is estimated that at the end of 5 years, the delivery vans and the delivery equipment can be sold for 10,000.

The wages for the delivery drivers who have to be hired for the new service will be 500,000 per year.

In the first year, Super expects revenues from sales via the online/delivery service 600,000, in the second year of 1,500,000, 2,500,000 in year 3, 2,000,000 in year 4 and 4,500,000 in the final years of the project.

The discount rate Super uses is 5% and they usually expect projects to be paid back after 5 years.

1. Please evaluate this project using the Net Present Value, Payback and Discounted Payback Period as well as the Profitability Index. Should Super offer home delivery?

2. Advise the CEO and CFO whether it would be beneficial for the company to offer online ordering and home delivery. To do so, write a report (500 words) explaining the findings from a) and discussing the benefits and drawbacks of each of the methods used in a). Draw a conclusion of your position.