Acorn Corporation Designs and Installs Fire-Suppression Systems in Commercial Buildings

question 74

Essay

Acorn Corporation designs and installs fire-suppression systems in commercial buildings. Over 90 percent of Acorn's business is in new construction, with the remainder in upgrade installations in remodeled buildings. For planning and control purposes, Acorn's controller (Jane Reid) is considering purchasing cost and financial accounting software from Constructor Solutions, Inc. Costs for the software modules are shown below: Required:
1. Jane uses value-chain analysis in evaluation of capital investments. She asks you which method, internal rate of return (IRR) or net present value (NPV), would be best in selecting individual software modules, and your reason(s) for the choice of method.
2. Jane says, "If we buy the entire set of six modules, we will get the equivalent of Module 6 free." Why might this savings of almost $1,500 be illusory?
3. The present value of the cost savings generated by the set of six modules, based on a five-year life and discount rate of 18 percent, is estimated as $13,844.50. Should the set of six modules be purchased? Explain. How would your decision be affected if Acorn's minimum rate of return were 24 percent? (No calculations are necessary to answer this question.)

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Definitions:

Domestic Slave Trade

The buying and selling of slaves within the boundaries of a country, such as the internal trade of slaves in the United States.

Antebellum Era

The period in American history before the Civil War, known for its escalating conflicts over slavery.

Benevolent Organizations

Groups or societies founded for the purpose of performing acts of kindness or charity, often providing support to those in need.

Slave Patrols

Organized groups that enforced discipline on slaves and captured escaped slaves in the Southern United States before the Civil War.