A B Exhibit 1 Purchase new system D Initial Outlay Year 1 Year 2 Years Year 4 Years Year $ 1.750,000 1.050.000 200 000 250.000 2,000,000 750,000 56,000,000 Initial cash outflows Hardware Software Training Site preparation Initial systems design Conversion Total initial cash outflow Recurring cash outflows Hardware expansion Software Systems maintenance RFID tags and scanner Communication charges Networking charges Total cash outflows Cash inflows clerical and general overhead cost Working capital Profits from growing existing services Profits from growing sales Total cash inflows Cash inflows less cash outflows Less income taxes Cash inflows (outflows) net of tax Depreciation tax shield Net cash inflows (outflows) 5 OS 40,000 O 150,000 60.000 120,000 500,000 450,000 100,000 160,000 300,000 420,000 960,000 1,340,000 30,000 5 120,000 $ 160,000 S 200,000 200,000 225,000 250,000 275,000 130 000 140,000 150 000 160.000 450,000 400,000 200,000 100,000 180,000 200,000 220,000 240.000 490,000 560,000 630,000 700,000 1,530,000 1.645,000 1.610.000 1.675 000 60,000 100,000 500,000 300,000 900,000 700,000 2,500,000 1,160,000 (394.400 765,500 297,500 3,063,100 700,000 500,000 900,000 300,000 2,900.000 1,370,000 (465,800) 904 200 297,500 1,201.700 0 160,000 (800,000 272,000 528.000) 297,500 230,500) 1.. 800,000 1,000,000 1,200,000 1,200,000 4,200,000 2,555,000 (868,700) 1,686,300 297,500 1.983,800 all. 900,000 1,000,000 800,000 B00,000 1,400,000 1,500,000 1,600,000 2,000,000 4,700,00 5,300.000 3,090,000 3,625,000 (1,050,600) (1.232.500) 2,039,400 2.392,500 297,500 297 500 2,336,900 2.690.000 A Exhibit 1 Update existing system Initial Outlay Year 1 Year 2 Year 3 $ 200,000 500,000 200,000 100,000 800,000 200,000 $2,000,000 5 Initial cash outflows Hardware Software Training Site preparation Initial systems design Conversion Total initial cash outflow 1 Recurring cash outflows 2 Hardware expansion Software 3 Systems maintenance 24 RFID tags and scanner Communication charges 25 Networking charges 26 Total cash outflows Cash inflows 27 clerical and general overhead cost 28 Working capital Profits from growing existing services 29 Profits from growing sales 730 Total cash inflows Cash inflows less cash outflows 131 Less income taxes 132 Cash inflows foutfiows net of tax Depreciation tax shield 133 Net cash inflows outflows 05 0 0 100,000 60,000 100,000 500,000 300,000 100,000 160,000 100,000 150,000 760,000 810,000 $ 200,000 100,000 125,000 150,000 180,000 200,000 955,000 500,000 400,000 300,000 300,000 300.000 200.000 600,000 750,000 900.000 600,000 700,000 800,000 2,000,000 2,150,000 2,200,000 1,240,000 3,340,000 1,245,000 (421,600 455,500 (423,300) 813,400 584,400 821,700 225,000 225.000 225,000 $1,043,400 $ 1,109,400 5 1,046,700 Requirement 1: Compute the payback period for the two alternatives. Discuss the advantages and disadvantages of using the payback period to evaluate capital investment decisions. Based on the results of the calculated paybac 135 period, which investment would you recomment Mike & Tim pursue? 136 Maryville Environmental Services began operations in 1975. The company provides water management engineering services for developers, city planners, and architectural firms nationwide. Competitors view Maryville Environmental Services as the market leader in the water management systems industry. Consequently, Mike and Tim must invest in a new or updated information technology system to meet customer needs and remain a market leader. Maryville Environmental Services' engagements span a wide range of services. A routing engagement, for example, entails the design and engineering of residential housing development water management systems. Specific services include detailed landscape plans for rainwater drainage, and the design for fresh water flow into the development as well as the flow of wastewater back into the drainage system. An example of a complex engagement is the design and engineering of airport water management systems. Services include the design of runway water management systems, complex and integrated water management systems for airport terminals, aircraft waste disposal systems, fire safety systems, restaurant support systems, and other facilities that serve a large population. Maryville Environmental Services partners critically supervise the construction process of all jobs. Moreover, customers appreciate the attention Maryville Environmental Services gives to every detail. Projects currently at various stages of completion include residential developments, a hospital, and an airport. Exhibit 1 contains information related to estimated costs and savings associated with the purchase of a new information technology system Exhibit 2 contains information related to estimated costs and savings associated with the update of the existing information technology system