Spartan Company is considering purchasing a new CRM system. The following information has been collected:
1) The project has an anticipated economic life of 3 years.
2) The company will have to purchase a new system to replace the current CRM system. The system has an initial cost of $1.4 million. The machine will be depreciated on a straight-line depreciation basis over 3 years. The company anticipates that the system will last for 3 years, and that after three years, its salvage value will equal $350,000. Spartan Company is considering this new system for only three years and will reevaluate the system after year three.
3) The CRM system will require installation charge of $65,000 as well as shipping charge of $12,000. The current employees of Spartan Company will be trained by a consultant on the new system. The training materials cost $12,000, and the up-front trainer's fee is $56,000. There is a technology upgrade charge every other year (year 2,4, etc.) for the new registration system of $500,000 after taxes.
4) If the company goes ahead with the proposed product, it will have an effect on the company's net operating working capital. At the outset, it will increase by $15,000. The treasurer expects this value to increase to 2% per year for the life of the project. In the terminal year, the net operating working capital will be recovered after the project is completed.
5) the new CRM system is expected to generate sales revenue of $3.6 million after the first year, $3.67 million the second year, and 3.85 million the third year. Each year the operating costs (not including depreciation) are expected to equal 60% percent of sales revenue.
6) The company's interest expense each year will be 20% of earnings before interest expenses and taxes (EBIT) to maintain a consistent Capital structure.
7) By implementing the new CRM system, Spartan Company will be to fire one full-time corporate headquarters employee who's salary is $89,000 per year.
8) The company's tax rate is 40%
9) The cost of capital is 7%
Please conduct analysis and show excel functions to obtain: NPV, MIRR. IRR, PB, DPB, PI