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| Cab Co owns and runs 350 taxis and had sales of $10 million in the last year. Cab Co is considering introducing anew computerised taxi tracking system. The expected costs and benefits of the new computerised tracking system are as follows: i. The system would cost $2,100,000 to implement. ii. Depreciation would be provided at $420,000 per annum. iii. $75,000 has already been spent on staff training in order to evaluate thepotential of the new system. Furthertraining costs of $425,000 would berequired in the first year if the new system is implemented. iv. Sales are expected to rise to $11 million in Year 1 if the new system isimplemented, thereafter increasing by5% per annum. If the new system is notimplemented, sales would be expected to increase by $200,000 perannum. v. Despite increased sales, savings in vehicle running costs are expected as aresult of the new system. These areestimated at 1% of total sales. vi. Six new members of staff would be recruited to manage the new system ata total cost of $120,000 per annum. vii. Cab Co would have to take out a maintenance contract for the new systemat a cost of $75,000 per annumfor five years. viii. Interest on money borrowed to finance the project would cost $150,000per annum. ix. Cab Co’s cost of capital is 10% per annum. State whether each of the following items are relevant or irrelevant cashflows for a net present value (NPV)evaluation of whether to introduce thecomputerised tracking system. i. Computerised tracking system investment of $2,100,000; |