Focus on reducing external failure cost

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Reference no: EM13953654

Part 3 Next, you focus on reducing external failure cost. You analyze the cost of returned burgers and determine 70% of returns are due to wrong ingredients. You note Barry is using paper slips to send orders to the grille so you do some research and find a point of sale terminal that shows customer what they are ordering and requires grille worker to confirm ingredients before wrapping burger. The new terminal will cost $3,000 with an expected life of 5 years (use SL depr.), but could save 80% of current returns due to wrong ingredients. Required: Compute NPV for the new terminal with 40% tax rate and Barry's cost of capital = 10% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Initial Cost $(3,000) Projected savings SL Depreciation Pre-tax profit increase less taxes at 40% After tax profit increase Add back depreciation Cash flow Net Present Value $-

Reference no: EM13953654

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