1. Cristina Company is considering investing in a new electronic data interchange (EDI) integrated system. The expected

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1 Cristina Company Is Considering Investing In A New Electronic Data Interchange Edi Integrated System The Expected 1 (89.26 KiB) Viewed 17 times

1. Cristina Company is considering investing in a new electronic data interchange (EDI) integrated system. The expected data follow. The cost savings are already after taxes, so taxes can be ignored. Year Acquisition cost Useful life Additional major improvement in 3 years Salvage value at end of 8 years Annual cost savings Now Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Years 1, 2, 3, 4 Years 5, 6, 7, 8 Salary of janitor per year whether the company buys the system or not Management estimates of the old, fully depreciated system if sold today Cost of capital is 12%. a. Set up the schedule of relevant cash flows below. Label clearly the relevant items. Calculate the net present value in the last column. Label Relevant Items b. Calculate the payback period. $450,000 8 years $36,000 $84,000 $130,000 $150,000 Annual Cash Flows $22,000 $12,000 PV Present Factor Value