Vickery and Vojnovic is a business partnership set up by Robin Vickery and Kaspar Vojnovic some years ago. The partners are now considering the installation of a new computer system using pecially written software to streamline the business's warehousing operations. The initial outlay on he project will be substantial. A feasibility study has already cost £20 000. Kaspar estimates that payments to the software house will be £100 000 immediately, with a further £75 000 in a year's ime. New equipment and installation and testing costs will amount to £148 000 during the first year it should be assumed for appraisal purposes that these costs arise at time 1). The plan is that the new system should go live in one year's time. After that point the business should start to reap considerable benefits from what will be, essentially, a paperless ordering and shipment tracking system. The partners plan to reduce their staffing levels considerably during the first two years during which the system is in operation and there will be other cost saving benefits including a eduction in office storage space, stationery, postage and other costs. Because of the increased efficiency of the operation, the partners also expect substantial increases in sales. The net cash
Vickery and Vojnovic is a business partnership set up by Robin Vickery and Kaspar Vojnovic some years ago. The partners are now considering the installation of a new computer system using pecially written software to streamline the business's warehousing operations. The initial outlay on he project will be substantial. A feasibility study has already cost £20 000. Kaspar estimates that payments to the software house will be £100 000 immediately, with a further £75 000 in a year's ime. New equipment and installation and testing costs will amount to £148 000 during the first year it should be assumed for appraisal purposes that these costs arise at time 1). The plan is that the new system should go live in one year's time. After that point the business should start to reap considerable benefits from what will be, essentially, a paperless ordering and shipment tracking system. The partners plan to reduce their staffing levels considerably during the first two years during which the system is in operation and there will be other cost saving benefits including a eduction in office storage space, stationery, postage and other costs. Because of the increased efficiency of the operation, the partners also expect substantial increases in sales. The net cash
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 8P
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