You are in the mail-order business, selling computer peripherals, including high-speed Internet cables, various storage devices such as memory sticks, and wireless networking devices. You are considering upgrading your mail ordering system to make your operations more efficient and to increase sales. The computerized ordering system will cost $250,000 to install and $50,000 to operate each year. The system is expected to last eight years with no salvage value at the end of the service period. The new order system will save $120,000 in operating costs (mainly, reduction in inventory carrying cost) each year and bring in additional sales revenue in the amount of $40,000 per year for the next eight years. If your interest rate is 12%,justify your investment using the NPW method.
You are in the mail-order business, selling computer peripherals, including high-speed Internet cables, various storage devices such as memory sticks, and wireless networking devices. You are considering upgrading your mail ordering system to make your operations more efficient and to increase sales. The computerized ordering system will cost $250,000 to install and $50,000 to operate each year. The system is expected to last eight years with no salvage value at the end of the service period. The new order system will save $120,000 in operating costs (mainly, reduction in inventory carrying cost) each year and bring in additional sales revenue in the amount of $40,000 per year for the next eight years. If your interest rate is 12%,justify your investment using the NPW method.
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