JigSaw Puzzle Company is a chain of 10 retail stores that sell puzzles.  In order to more efficiently process and record sales, they are considering the purchase of a point-of-sale system.  You have been asked to perform the cost-benefit analysis for this new system.  The system will provide annual salary savings of $200,000 for each year of the system's 7-year life.  The firm's cost of capital is 12%.  The system development cost is projected to be $350,000.  Annual operating costs (other than salaries) will rise by $60,000 if we implement the new system.   The following factors are for 12%, and 7 years:   Present value of a lump sum                     0.452 Present value of an annuity                       4.564   REQUIRED:   Using net present value analysis, evaluate the economic feasibility of the proposed system.   Your analysis in #1 above deals with only one aspect of feasibility.  Briefly explain other aspects of feasibility that should be considered before a final recommendation is made.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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JigSaw Puzzle Company is a chain of 10 retail stores that sell puzzles.  In order to more efficiently process and record sales, they are considering the purchase of a point-of-sale system.  You have been asked to perform the cost-benefit analysis for this new system.  The system will provide annual salary savings of $200,000 for each year of the system's 7-year life.  The firm's cost of capital is 12%.  The system development cost is projected to be $350,000.  Annual operating costs (other than salaries) will rise by $60,000 if we implement the new system.

 

The following factors are for 12%, and 7 years:

 

Present value of a lump sum                     0.452

Present value of an annuity                       4.564

 

REQUIRED:

 

  1. Using net present value analysis, evaluate the economic feasibility of the proposed system.

 

  1. Your analysis in #1 above deals with only one aspect of feasibility.  Briefly explain other aspects of feasibility that should be considered before a final recommendation is made.
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