Reference no: EM131007395
(note: for this problem assume that all cash flows are stated in actual dollars and interest is market rate) Nike is considering three mutually exclusive alternatives for an inventory tracking and control system at one of its major assembly plants. You are the engineer in charge of evaluating the economics of these alternatives. In all three alternatives, after the initial investment, there are anticipated cost savings every year for the life of the project due to better accuracy of records, less clerical time spent correcting errors, and less lost product that could be sold. Details of each alternative are:
Alternative 1: Initial investment = $210,000
Savings each year = $73,000
Alternative 2: Initial investment = $320,000
Savings each year = $99,500
Alternative 3: Initial investment = $400,000
Savings each year = $132,000
The analysis period is 4 years, and all three alternatives will have zero salvage value at the end of 4 years.
If Nike’s minimum attractive rate of return is 10% per year, which alternative will you recommend to your boss and why?
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