Juke$$s Retro Arcade Games $($J$-$RAG$)$

Juke$$s Retro Arcade Games $($J$-$RAG$)$ is a partnership owned by brothers Jake and Luke that trades second$-$hand games, including popular games consoles and arcade games from the $1980$s$.$ The business has a single store in a popular location, and hires $15$ part$-$time workers, most of whom attend the local university. Whilst this creates great flexibility, J$-$RAG struggles with staff retention, especially during the spring each year as the students who work at the business need time to prepare for their exams.

The business also has an outdated computer system so struggles with accurate stock control management. J$-$RAG$$s accountant has also advised that the business needs to improve its financial and human resources record keeping, such as a secure database of employee details and payment records. Therefore, the brothers are considering whether to invest in a new computerised system to improve its operational efficiency. The cost of the investment is forecast to be $$140,000$ with an expected lifespan of five years. Alternatively, they could use the money to hire two full time workers which is expected to minimise disruptions caused by high labour turnover.

The forecasted net cash flows from the investment in the computerised system are given below. The partnership uses a $4\%$ discount factor $($HL only$).$

Year

Net cash flow $($$$)$

Discount factor

$1$

$45,000$

$0\mathrm{.}9615$

$2$

$50,000$

$0\mathrm{.}9246$

$3$

$55,000$

$0\mathrm{.}8890$

$4$

$45,000$

$0\mathrm{.}8548$

$5$

$40,000$

$0\mathrm{.}8219$

$($a$)($i$)$

Define the term partnership.

$[2$ marks$]$

$($a$)($ii$)$

Define the term labour turnover.

$[2$ marks$]$

$($b$)($i$)$

Calculate the payback period for the proposed investment project.

$[2$ marks$]$

$($b$)($ii$)$

Calculate the average rate of return $($ARR$)$ for the proposed investment project.

$[2$ marks$]$

$($b$)($iii$)$

Calculate the net present value $($NPV$)$ for the proposed investment project.

$[2$ marks$]$

$($c$)$

Evaluate whether J$-$RAG should invest in the new computerised system. Use information from the case study and both quantitative and qualitative considerations in your answer.

$[10$ marks$]$