The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software and installation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10%/year MARR. Solve, a. What is the annual worth of each investment?b. What is the decision rule for determining the preferred investment basedon annual worth ranking? c. Which (if either) ERP system should Manuel purchase?
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software and installation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10%/year MARR. Solve, a. What is the annual worth of each investment?b. What is the decision rule for determining the preferred investment basedon annual worth ranking? c. Which (if either) ERP system should Manuel purchase?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 2P
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The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software and installation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10%/year MARR. Solve, a. What is the annual worth of each investment?
b. What is the decision rule for determining the preferred investment based
on annual worth ranking? c. Which (if either) ERP system should Manuel purchase?
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