[9441ke]

a) Uber cabs owns and runs 350 taxis and had sales of Kshs.50 million in the last year. Cab Co is considering introducing a new computerised taxi tracking system. The expected costs and benefits of the new computerised tracking system are as follows:
(i) The system would cost Kshs.3,100,000 to implement.
(ii) Depreciation would be provided at Kshs.620,000 per annum.
(iii) Kshs.85,000 has already been spent on staff training in order to evaluate the potential of the new system. Further training costs of Kshs.525,000 would be required in the first year if the new system is implemented.
(iv) Sales are expected to rise to Kshs.51 million in Year 1 if the new system is implemented, thereafter increasing by 5% per annum. If the new system is not implemented, sales would be expected to increase by Kshs.200,000 per annum.
(v) Despite increased sales, savings in vehicle running costs are expected as a result of the new system. These are estimated at 1% of total sales.
(vi) Six new members of staff would be recruited to manage the new system at a total cost of Kshs.120,000 per annum.
(vii) Cab Co would have to take out a maintenance contract for the new system at a cost of Kshs.75,000 per annum for five years.
(viii) Interest on money borrowed to finance the project would cost Kshs.150,000 per annum.
(ix) Cab Co’s cost of capital is 10% per annum.
Required:
Advice the company on the best course of action to take-15 marks

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