PizzaRush, which is located in the general Los Angeles area, fares very well wit
ID: 2501990 • Letter: P
Question
PizzaRush, which is located in the general Los Angeles area, fares very well with its competition in offering fast delivery. Many students at the area universities and community colleges work part-time delivering orders made via the web at PizzaRush.com. The owner, a software engineering graduate of USC, plans to purchase and install five portable, in-car systems to increase delivery speed and accuracy. The systems provide a link between the web order-placement software and the On-Star system for satellite-generated directions to any address in the Los Angeles area. The expected result is faster, friendlier service to customers, and more income for PizzaRush. Each system costs Rs. 4600, has a 5-year useful life, and may be salvaged for an estimated Rs. 300. Total operating cost for all systems is Rs. 650 for the first year, increasing by Rs. 50 per year thereafter. The MARR is 10%. Perform an annual worth evaluation for the owner that answers the following questions. a. How much new annual income is necessary to recover the investment at the MARR of 10% per year? b. The owner conservatively estimates increased income of Rs. 1200 per year for all five systems. Is this project financially viable at the MARR?
Explanation / Answer
Answer : Calculation ofnew annual income @ MARR 10%
Minimum Rs. 4975.01 income required for MARR 10%.
If Yearly increased income is Rs. 1200 for all systems, Project is not viable.
Year Investment Operating cost PV at 10% PV Total 0 23000.00 23000.00 1 650.00 0.909 590.85 590.85 2 700.00 0.826 578.20 578.20 3 750.00 0.751 563.25 563.25 4 800.00 0.683 546.40 546.40 5 850.00 0.621 527.85 527.85 Salvage -1500 0.621 -931.50 -931.50 Total 24875.05 Total Income required = 24875.05 Minimum Yearly income required '24875.05/5 '= 4975.01