Alamo Foods of San Antonio wants to introduce a new computer system for its peri
ID: 1193857 • Letter: A
Question
Alamo Foods of San Antonio wants to introduce a new computer system for its perishable products warehouse. The costs and benefits are as follows:
Year
Costs
Benefits
1
$35,000
$23,000
2
36,600
28,200
3
38,300
34,700
4
40,100
42,800
5
42,000
53,000
6
44,000
65,700
A) Given a discount rate of 9 percent (.09), perform present value analysis on the data for Alamo Foods. (Hint: Use the formula 1/ (1 + i)n to find the multipliers for years 1 to 6.)
b) What is your recommendation for Alamo Foods?
Year
Costs
Benefits
1
$35,000
$23,000
2
36,600
28,200
3
38,300
34,700
4
40,100
42,800
5
42,000
53,000
6
44,000
65,700
Explanation / Answer
a)
b)
My recommendation is that Alamo Foods introduce a new computer system, because the total benefits measured in today's dollars are more than the cost measured in today's dollars.
Year Costs Benefits PV Factor @9% Costs Present value of benefits 1 $35,000 $23,000 0.917 $32,110.09 $21,100.92 2 36,600 28,200 0.842 $30,805.49 $23,735.38 3 38,300 34,700 0.772 $29,574.63 $26,794.77 4 40,100 42,800 0.708 $28,407.85 $30,320.60 5 42,000 53,000 0.650 $27,297.12 $34,446.36 6 44,000 65,700 0.596 $26,235.76 $39,174.76 $174,430.94 $175,572.79Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.