First National Bank Investment Decision: ATM Four years ago the First National B
ID: 2638418 • Letter: F
Question
First National Bank
Investment Decision: ATM
Four years ago the First National Bank of California installed an automated teller machine (ATM) at one of its branches. The machine had the capacity to accept deposits, make withdrawals, and handle inquiries regarding account balances. Not long afterward, one of its competitors, the Last National State Bank, installed its own superior and reliable ATM and called it MoneyMax ATM. It can do everything the First National's ATM can do, and more, including transferring customers' funds between checking and savings, card retraction, receipt printing, customer service requests, dot-matrix Journal printing or electronic journal and accepting any bill payments.
Since the Last National State Bank installed its MoneyMax, First National has lost many of its customers. As a result, First National is considering purchasing a new, more efficient and productive ATM called Tranax Mini-Bank because it will handle a wide range of options to the bank
Explanation / Answer
Answer to Question 1:
Net investment required to purchase a new ATM is as follows:
Cost of the new ATM= $1,000,000 minus Current actual value of the old ATM i.e., $200,000
= $800,000
Assumption: Old ATM is sold at the current value of $200,000
Answer for 2:
Annual increment net cash flows for each year of the new project:
Year Revenue (A) Increase in net working capital (B) Annual Maintenance costsRelated Questions
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