Alamo Foods of San Antonio wants to introduce a new computer system for its perishable products warehouse. The costs and benefits are as follows:

year costs benefits

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1 33000 21000

2 34600 26200

3 36300 32700

4 38100 40800

5 40000 51000

6 42000 63700

a. Given a discount rate of 8 percent (.08), perform present value analysis on the data for Alamo Foods. (Hint: Use the formula1/(1 + i)n to find the multipliers for years 1 to 6.)

b. What is your recommendation for Alamo Foods?

c. Suppose the discount rate in Problem 1a changes to 13 percent (.13). Perform present value analysis using the new discount rate

d. Explain the difference between Problem b and Problem d.


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