Questions on EPR Investment

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QUESTIONS If an investment in EPR system is made, cash flow is to be generated by several sources. There are four waves of implementation specified in the case over the period of 1999 - 2007. Calculate the cash flow for all waves due to (a) improved inventory (one-time, non-taxable), (b) expanded sales due to better product availability (continuous, taxable), and (c) enlarged margin (continuous, taxable). The savings that Whirlpool has predicted in the case for its European options is composed primarily of the savings associated with reducing inventory turnover and the improvement of sales and sales margins. These two categories represent roughly ninety percent of the savings that Whirlpool expects to save this the integration of an ERP system. These saving estimates are summarized in the following table: Â 1999 2000 2001 2002 2003 2004 DSI Savings 0.00 3,443,219 8,239,818 9,807,970 7,119,090 4,235,264 Improvements by sales & margin 0.00 3,555,949 11,137,841 21,908,253 28,206,884 31,404,777 Other cost savings 0.00 621,000 1,749,000 2,544,000 3,300,000 3,457,000 Total 0.00 7,620,168 21,126,659 34,260,222 38,625,974 39,097,040 Analyze the interactions between these three sources of cash flow. What are your findings? The cash flows make the project look incredibly attractive. Although the company will expect to have a negative cash flow of about three and a half million in the year 2000, the benefits in 2001 exceed the negative

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