Sonar warning devices are being purchased by the St. James department store chain to help trucks back up at store loading docks. Tbe total cost of purchase and installation is £220 000. There are two types of saving from the system. Faster turnaround time at the congested loading docks will save £50 000 per year in today's pounds.
Reduced damage to the loading docks will save £30 000 per year in today's pounds. St. James has an observed actual pound MARR of 18%. The sonar system has a life of four years. Its scrap value in today's pounds is £20 000. The inflation rate is expected to be 6% per year over the next four years.
(a) Wha t is St. James's real MARR?
(b) What is the real internal rate of return? (This is most easily done with a spreadsheet.)
(c) Compute the actual internal rate of return using Equation (9.10).
(d) Compute the actual internal rate of return from the actual pound cash flows. (This is most easily done with a spreadsheet.)
(e) Wha t is the present worth of the system?