The International Parcel Service has installed a new radio frequency identificat
ID: 2772945 • Letter: T
Question
The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $66000, and the projected annual savings are tabled below. The system's market value at the EOY five is negligible, and the MARR is 12% per year.
End of year Savings 1 $24000 2 $32000 3 $28000 4 $42000 5 $47000
a) What is the FW of this investment? b) What is the IRR of the system? c) What si the discounted payback period for this investment?
Explanation / Answer
year
Cash flow
FV factor 12%
FV = CF x FV factor
0
-66000
1.762
-116314.55
1
24000
1.574
37764.46
2
32000
1.405
44957.70
3
28000
1.254
35123.20
4
42000
1.120
47040.00
5
47000
1.000
47000.00
FW
95570.81
Hence, FW of the project is 95,570.81
year
Cash flow
0
-66000
1
24000
2
32000
3
28000
4
42000
5
47000
IRR
37.86%
IRR of the project is 37.86%.
year
Cash flow
PV factor 12%
PV = CF x PV factor
Cumulative Discounted CF
0
-66000
1.000
-66000.00
-66000.00
1
24000
0.893
21428.57
-44571.43
2
32000
0.797
25510.20
-19061.22
3
28000
0.712
19929.85
868.62
4
42000
0.636
26691.76
27560.38
5
47000
0.567
26669.06
54229.44
PBP = last year of negative CCF + required CF in firt year of positive CF year/ CF
= 2+ 190,61.22/19,929.85
= 2.96 years.
Hence discounted payback period is 2.96 years.
year
Cash flow
FV factor 12%
FV = CF x FV factor
0
-66000
1.762
-116314.55
1
24000
1.574
37764.46
2
32000
1.405
44957.70
3
28000
1.254
35123.20
4
42000
1.120
47040.00
5
47000
1.000
47000.00
FW
95570.81
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