Production scheduling information systems for ferro

Assignment Help Operation Management

Reference no: EM1391305

Two new production scheduling information systems for Ferro Corporation could be developed at a cost of $105,000 and $135,000 respectively. Interest rate is 15%. The estimated net operating costs and estimated net benefits over five years of operation would be:

Project A
Estimated Net Estimated Net
Year Operating Costs Benefits

0 $ 105,000 0
1 $ 3,500 $26,000
2 $ 4,700 $34,000
3 $ 5,500 $41,000
4 $ 6,300 $55,000
5 $ 7,000 $66,000

Project B
Estimated Net Estimated Net
Year Operating Costs Benefits

0 $ 135,000 $12,500
1 $ 3,800 $21,500
2 $ 4,900 $32,300
3 $ 5,800 $35,300
4 $ 6,700 $44,100
5 $ 7,800 $61,000

Calculate payback period (PBP), net present value (NPV), and internal rate of return (IRR).

Project A

Interest Rate 15%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cost $(105,000) $(3,500) $(4,700) $(5,500) $(6,300) $(7,000)
Benefit 0 $26,000 $34,000 $41,000 $55,000 $66,000
Pay Back Period?
NVP?
IRR?

Project B

Interest Rate 15%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cost $(135,000) $(3,800) $(4,900) $(5,800) $(6,700) $(7,800)
Benefit 12500 $21,500 $32,300 $35,300 $44,100 $61,000
Pay Back Period?
NVP?
IRR?

Which project do you recommend for development? Support your recommendation.?

Note: Interest Rate = (r + pt) = 15%

Reference no: EM1391305

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