Fandango Company Limited Is Considering Purchasing One of Three Warehouse

question 43

Multiple Choice

Fandango Company limited is considering purchasing one of three warehouse data management systems. The initial capital investment for System 1 is $9 million and improvements to net income before depreciation are estimated at being $500,000, $2.5 million and $3.5 million in the first three years and $5 million for the remaining system lifetime of six years. System 2, costing $10 million will yield income improvements of $1.5 million and $3.5 million in the first two years and $5 million for the remaining six years. System 3 costs $12 million and provides savings of $2 million, $3 million, and $4 million in the first three years and $5 million thereafter for six years. The best alternative judging by the payback method of investment appraisal is

• A) System 1 which pays back by the end of Year 3
• B) System 1 which pays back by the end of Year 2
• C) System 2 which pays back by the end of Year 2
• D) System 2 which pays back by the end of Year 3
• E) System 3 which pays back by the end of Year 3

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Definitions:

Specialization

The process of focusing on a specific area of study or work, developing expertise in a particular field.

Standardization

The process of implementing and developing technical standards to ensure consistency, safety, and interoperability of products or processes.

Organizational Behaviour

The study of how people interact within groups in a work environment to understand human aspects in workplaces.

Management

The process of effectively organizing, planning, leading, and controlling resources to achieve organizational objectives.