You are the employee of Typing4u Enterprise, a typing service company based in Selangor. The company has decided to upgrade its equipment. It currently has a widely used version of a word processing program. The company wishes to invest in more up-to-date software and to improve its printing capabilities.

Two options have emerged. Option 1 is for the company to keep its existing computer system, and upgrade its word processing program. The memory of each individual workstation would be enhanced, and a larger, more efficient printer would be used. Better telecommunications equipment would allow for the electronic transmission of some documents as well.

Option 2 would be for the company to invest in an entirely different computer system. The software for this system is extremely impressive, and it comes with individual laser printers. However, the company is not well known, and the software does not connect well with well-known software. The net present value information for these options follows:

                                                         Option 1                  Option 2  

Initial Investment                         RM(95,000)              RM(240,000)

Returns           Year 1                          55,000                         80,000

                        Year 2                          30,000                         80,000

                        Year 3                          10,000                         80,000

                        Net Present Value                 0                                  0

(a) Prepare a brief report for management in which you make a recommendation for one system or the other, using the information given.                                                   

(b) Management is often faced with the alternative of continuing to make a product or component internally or going to an external source and purchasing the product or component. In gathering relevant information for these two alternatives, briefly identify the quantitative factors that should be considered. Are there any qualitative factors that should also be considered?            

Answer rating: 100% (QA)

Both Options has 0 NPV It means there will be no profit or no loss on entering into these contracts Both Options Payback period is also 3 years Option 1 is earning heavy cash inflows initially But in ... View the full answer