JigSaw Puzzle Company is a chain of 10 retail stores that sell puzzles. In order to more efficiently process and record sales, they are considering the purchase of a point-of-sale system. You have been asked to perform the cost-benefit analysis for this new system. The system will provide annual salary savings of $200,000 for each year of the system's 7-year life. The firm's cost of capital is 12%. The system development cost is projected to be $350,000. Annual operating costs (other than salaries) will rise by $60,000 if we implement the new system. The following factors are for 12%, and 7 years: Present value of a lump sum 0.452 Present value of an annuity 4.564 REQUIRED: Using net present value analysis, evaluate the economic feasibility of the proposed system. Your analysis in #1 above deals with only one aspect of feasibility. Briefly explain other aspects of feasibility that should be considered before a final recommendation is made.
JigSaw Puzzle Company is a chain of 10 retail stores that sell puzzles. In order to more efficiently process and record sales, they are considering the purchase of a point-of-sale system. You have been asked to perform the cost-benefit analysis for this new system. The system will provide annual salary savings of $200,000 for each year of the system's 7-year life. The firm's cost of capital is 12%. The system development cost is projected to be $350,000. Annual operating costs (other than salaries) will rise by $60,000 if we implement the new system. The following factors are for 12%, and 7 years: Present value of a lump sum 0.452 Present value of an annuity 4.564 REQUIRED: Using net present value analysis, evaluate the economic feasibility of the proposed system. Your analysis in #1 above deals with only one aspect of feasibility. Briefly explain other aspects of feasibility that should be considered before a final recommendation is made.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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JigSaw Puzzle Company is a chain of 10 retail stores that sell puzzles. In order to more efficiently process and record sales, they are considering the purchase of a point-of-sale system. You have been asked to perform the cost-benefit analysis for this new system. The system will provide annual salary savings of $200,000 for each year of the system's 7-year life. The firm's cost of capital is 12%. The system development cost is projected to be $350,000. Annual operating costs (other than salaries) will rise by $60,000 if we implement the new system.
The following factors are for 12%, and 7 years:
Present value of a lump sum 0.452
Present value of an annuity 4.564
REQUIRED:
- Using
net present value analysis, evaluate the economic feasibility of the proposed system.
- Your analysis in #1 above deals with only one aspect of feasibility. Briefly explain other aspects of feasibility that should be considered before a final recommendation is made.
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