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Question 5.FF: The International Parcel Service has installed a new radio f...

The  International  Parcel  Service  has installed  a  new  radio  frequency  identification  system to help reduce the number of packages that are incorrectly  delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system’s market value at the EOY five is negligible, and the MARR is 18% per year.

End of Year Savings  1     $25,000

                                      2    $30,000

                                      3    $30,000

                                      4     $40,000

                                      5     $46,000

a. What is the FW of this investment?

b. What is the IRR of the system?

c. What is the discounted payback period for this investment?

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(a) FW(18%) = $84,028  ≥  0, so the profitability is acceptable.
(b) IRR  =  38.4%  ≥  18%,  so the investment is  a  profitable one.
(c) \acute{θ}  =  4 years, so the liquidity is marginal at best.

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