Case Study Objective:

Determine if an order entry system should be purchased if the required rate of return is 10%.

Case Study Requirements:

Your company is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $30,000 at the end of that time.

You will save $125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.

If the tax rate is 35%, what is the IRR for this project? Suppose your required return on the project is 10% and your pretax cost savings are $145,000 per year. Will you accept the project? What if the pretax cost savings are only $105,000 per year?

Submit all of the work you completed to arrive at your conclusions in a Word document or Excel spreadsheet.

Winnebagel Corp. currently sells 28,000 motor homes per year at $77,000 each and 7,000 luxury motor coaches per year at $120,000 each.

The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 29,000 of these campers per year at $23,500 each.

An independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 2,500 units per year and reduce the sales of its motor coaches by 750 units per year.

What is the amount to use as the annual sales figure when evaluating this project?

Submit the work you completed and the answer to this financial problem either in a Word document, Excel spreadsheet, or by taking a picture of your handwritten work.