Vickery and Vojnovic is a business partnership set up by Robin Vickery and Kaspar Vojnovic some...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Vickery and Vojnovic is a business partnership set up by Robin Vickery and Kaspar Vojnovic some years ago. The partners are now considering the installation of a new computer system using specially written software to streamline the business's warehousing operations. The initial outlay on the project will be substantial. A feasibility study has already cost £20 000. Kaspar estimates that payments to the software house will be £100 000 immediately, with a further £75 000 in a year's time. New equipment and installation and testing costs will amount to £148 000 during the first year (it should be assumed for appraisal purposes that these costs arise at time 1). The plan is that the new system should go live in one year's time. After that point the business should start to reap considerable benefits from what will be, essentially, a paperless ordering and shipment tracking system. The partners plan to reduce their staffing levels considerably during the first two years during which the system is in operation and there will be other cost saving benefits including a reduction in office storage space, stationery, postage and other costs. Because of the increased efficiency of the operation, the partners also expect substantial increases in sales. The net cash inflows forecast from the installation of the new systems are as follows: Time 2 3 4 5 £000 184 159 108 96 40 At the end of year six, the partners anticipate that the system will have to be scrapped and replaced with whatever is the latest technology at the time. There will be no residual value in the system at that point. i) ii) iii) The partners have asked you to appraise the project to see how quickly it will pay back. You offer to appraise the project using discounted cash flow techniques, although Robin (who did a business course a few years ago) is distinctly sceptical about this approach: "The good thing about payback is that you can see immediately how long it's going to take to recoup the cost of the investment. Discounted cash flow doesn't make any sense to me. However, he agrees that it might just be helpful to see what the NPV of the project is, and he estimates the business's cost of capital at 11%. Required calculate the payback period for the project calculate the NPV of the project using 11% as the discount rate calculate IRR Vickery and Vojnovic is a business partnership set up by Robin Vickery and Kaspar Vojnovic some years ago. The partners are now considering the installation of a new computer system using specially written software to streamline the business's warehousing operations. The initial outlay on the project will be substantial. A feasibility study has already cost £20 000. Kaspar estimates that payments to the software house will be £100 000 immediately, with a further £75 000 in a year's time. New equipment and installation and testing costs will amount to £148 000 during the first year (it should be assumed for appraisal purposes that these costs arise at time 1). The plan is that the new system should go live in one year's time. After that point the business should start to reap considerable benefits from what will be, essentially, a paperless ordering and shipment tracking system. The partners plan to reduce their staffing levels considerably during the first two years during which the system is in operation and there will be other cost saving benefits including a reduction in office storage space, stationery, postage and other costs. Because of the increased efficiency of the operation, the partners also expect substantial increases in sales. The net cash inflows forecast from the installation of the new systems are as follows: Time 2 3 4 5 £000 184 159 108 96 40 At the end of year six, the partners anticipate that the system will have to be scrapped and replaced with whatever is the latest technology at the time. There will be no residual value in the system at that point. i) ii) iii) The partners have asked you to appraise the project to see how quickly it will pay back. You offer to appraise the project using discounted cash flow techniques, although Robin (who did a business course a few years ago) is distinctly sceptical about this approach: "The good thing about payback is that you can see immediately how long it's going to take to recoup the cost of the investment. Discounted cash flow doesn't make any sense to me. However, he agrees that it might just be helpful to see what the NPV of the project is, and he estimates the business's cost of capital at 11%. Required calculate the payback period for the project calculate the NPV of the project using 11% as the discount rate calculate IRR
Expert Answer:
Related Book For
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
1 30 2 3 4 If A= = -1 2 1,B= 1 23 0 02 -1 1 2 5 9 13 (a) -1 2 4 -12 4 1 24 (C) -1 2 4 -2 24 then AB= 5 (b) -1 9 13 24 -2 2 4 (d) None of these
-
What types of problems does inflation cause when financial statements are analyzed?
-
Find the inverse, if it exists, for each matrix. -4 2
-
How do industrial robots benefit companies that use them for production and manufacturing?
-
Brady Company uses normal costing in its job-costing system. The company produces custom bikes for toddlers. The beginning balances (December 1) and ending balances (as of December 30) in their...
-
Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $10 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity...
-
Suppose that the two-dimensional vectors (X1, Y1), (X2, Y2), . . . , (Xn, Yn) form a random sample from a bivariate normal distribution for which the means of X and Y, the variances of X and Y , and...
-
5. Sketch the following functions (a) f(t)= u(t-3), (b) f(t) = u(t+2). (c) f(t) = u(t+2) - u(t-3). (d) f(t)=2u(t+1)-u(t-1). The definition of the unit step function: u(t)= 1, #20 0, <0.
-
P(E) Find the indicated probabilities by referring to the given tree diagram and by using Bayess Rule. A P(A) = 0.2 P(E|A)=0.6 E P(ECA) = 0.4 -EC P(B) = 0.55 P(E|B)=0.7 -E B EC P(E|B) = 0.3 P(C) =...
-
A sample of 100 IQ scores produced the following statistics: Which statement(s) is (are) correct? (1) Half of the scores are less than 95. (2) The middle 50% of scores are between 100 and 120. (3)...
-
P(E c |C) Find the indicated probabilities by referring to the given tree diagram and by using Bayess Rule. A P(A) = 0.2 P(E|A)=0.6 E P(ECA) = 0.4 -EC P(B) = 0.55 P(E|B)=0.7 -E B EC P(E|B) = 0.3 P(C)...
-
A sample of pounds lost in a given week by individual members of a weightreducing clinic produced the following statistics: Identify the correct statement: (1) One-fourth of the members lost less...
-
P(C|E) Find the indicated probabilities by referring to the given tree diagram and by using Bayess Rule. A P(A) = 0.2 P(E|A)=0.6 E P(ECA) = 0.4 -EC P(B) = 0.55 P(E|B)=0.7 -E B EC P(E|B) = 0.3 P(C) =...
-
The risk free rate is 0%. Stock X has an expected return of 10% and a standard deviation of 20%. Stock Y has an expected return of 20% and a standard deviation of 20%. Ennio has mean-variance...
-
Prove the result that the R 2 associated with a restricted least squares estimator is never larger than that associated with the unrestricted least squares estimator. Conclude that imposing...
-
Describe what is meant by a 'performance audit'.
-
What are the main challenges for independent auditors in providing assurance services in relation to greenhouse gas emissions?
-
In the confirmation of accounts receivable for Reliable Service Company Ltd, 85 positive and no negative confirmations were mailed to customers. This represents 35% of the dollar balance of the total...
-
For methanol synthesis reaction \[ \mathrm{CO}(\mathrm{g})+2 \mathrm{H}_{2}(\mathrm{~g}) ightleftharpoons \mathrm{CH}_{3} \mathrm{OH}(\mathrm{g}) \] Using a feed mixture of carbon monoxide and...
-
The L2 steel blade of the band saw wraps around the pulley having a radius of \(12 \mathrm{in}\). Determine the maximum normal stress in the blade. The blade has a width of 0.75 in. and a thickness...
-
An L2 steel strap having a thickness of 0.125 in. and a width of \(2 \mathrm{in}\). is bent into a circular arc of radius \(600 \mathrm{in}\). Determine the maximum bending stress in the strap.
Study smarter with the SolutionInn App