The International Parcel Service has installed a new radio f

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 S60,000, and the projected annual savings are tabled below. The system\'s market value at the EOY five is negligible, and the MARR is 20% per year a. What is the FW of this investment? b. What is the IRR of the system? c. What is the discounted payback period for this investment? End of Year Savings $25,000 32,000 32,000 37,000 47,000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 20% per year a. The FW of this investment is $95346. (Round to the nearest dollar.) b. The IRR of the system is(Round to one decimal place.)

Solution

Year Cash flows PVF @43.75% Present value 0 -60000 1 -60000 1 25000 0.695652 17391.3 2 32000 0.483932 15485.82 3 32000 0.336648 10772.75 4 37000 0.23419 8665.035 5 47000 0.162915 7656.999 NPV -28 Hence IRR = 43.75% Discounted Payback Year Cash flows PVF 20% Present value Cumulative cash inflows 0 -60000 1 -60000 -60000 1 25000 0.833333 20833.33 -39166.7 2 32000 0.694444 22222.22 -16944.4 3 32000 0.578704 18518.52 1574.074 4 37000 0.482253 17843.36 19417.44 5 47000 0.401878 18888.25 38305.68 Payback period: 2 year + 16944 /18518 = 2.92 years