NPV

Cab Co owns and runs 350 taxis and had sales of $10 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: (1)The system would cost $2,100,000 to implement. (2)Depreciation would be provided at $420,000 per annum. (3)$75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further training costs of $425,000 would be required in the first year if the new system is implemented. (4)Sales are expected to rise to $11 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 $200,000 per annum. (5)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. (6)Six new members of staff would be recruited to manage the new system at a total cost of $120,000 per annum. (7)Cab Co would have to take out a maintenance contract for the new system at a cost of $75,000 per annum for five years. (8)Interest on money borrowed to finance the project would cost $150,000 per annum. (9)Cab Co's cost of capital is 10% per annum. Calculate the following values if the computerised tracking system is implemented. Incremental sales in Year 1 $ ---------------- Savings in vehicle running costs in Year 1 $ ---------------------------------- Present value of the maintenance costs over the life of the contract $ ------------------------------------- Dear Sir, Good day to you. Please explain above question. Thanks