Assignment:
A new inventory management system for ABC Company could be developed at a cost of $260,000. The estimated net operating costs and estimated net benefits over six years of operation would be:
|
Year
|
Estimated Net Operating Costs
|
Estimated Net Benefits
|
|
0
|
$2,60,000
|
$0
|
|
1
|
7,000
|
42,000
|
|
2
|
9,400
|
78,000
|
|
3
|
11,000
|
82,000
|
|
4
|
14,000
|
115,000
|
|
5
|
15,000
|
120,000
|
|
6
|
25,000
|
140,000
|
a. What would the payback period be for this investment? Would it be a good or bad investment? Why?
b. What is the ROI for this investment?
c. Assuming a 15% discount rate, what is this investment's NPV?