Reference no: EM131068635

The Beach Dude (BD) Inc. sells surf gear and clothing to retail stores around the country. It outsources the production of most of its items, so its warehouse is very busy receiving incoming shipments and preparing deliveries to customers. After a thorough review of its warehouse processes, the company determined that it could save substantial employee time and improve its on time delivery rates if it adopted warehouse management system using RFID chips and readers. BD estimates that the RFID system and integration with its existing system will cost $400,000. The system is expected to have a useful life of 5 years and to have negligible value at the time (0 salvage value). Training for employees is expected to cost an additional $25,000. Additionally, the company's estimate for the cost of RFID tags is $30,000 per year based on the current $0.15 cost per tag. However, it believes there is a 50 percent probability that the cost per tag will decrease to $0.10 per tag in 2 years. BD estimates that it will save $150,000 per year in reduced employee overtime, fewer priority shipments and reduced inventory losses. Assume that BD has a cost of capital of 6 percent. A. Calculate the following for BD's investment, assuming there is no reduction in the cost of RFID tags:

1. Payback Period

2. The NPV

3. The IRR

4. The accounting rate of return

B. Recalculate those values assuming the cost of RFID tags does decrease in 2 years as expected. C. Identify some potential risks and possible omissions in BD's planning. Provide examples of situations that would lead to the risks that you identify. Please help I found I believe the Payback period is the initial investment 400,000 + 25,000/150,000 net benefits=2.83 years