To:Ms. Geraldine Pablo
Date:2/24/2014Re:Piedmont Trailer Manufacturing Company Economic Feasibility Analysis for the Custom Order-Tracking System. I would like to thank you for providing me the opportunity to prepare your company’s Economic Feasibility Analysis worksheets. I have compiled the information that you provided into several useful and easy to read charts, diagrams, and explanations. In this memorandum you will find a summary of breakeven points using discount rates of 8, 10, 12, 14, and 16 percent, a breakeven chart comparing the net present value of all benefits to the net present value of all costs, and the internal rate of return. I also provide analysis of a couple of different scenarios, for example, a scenario summarizing the elimination of a staff position, and another scenario summarizing the elimination of a staff position and some increased site preparation costs. You will also find an analysis offering a convincing case, in the event that management can fund two projects, for the funding of custom order tracking system under multiple conditions. Project feasibility based on discount rates of 8, 10, 12, 14, and 16 percent:
Breakeven chart comparing the net present value of all benefits to the net present value of all costs (at a discount rate of 14%):
If management stipulates that the internal rate of return must be equal to or greater than the discount rate, the project will still be justifiable at all discount rates. At all discount rates (8, 10, 12, 14, and 16 percent), the internal rate of return remains at 17.05 percent. Assuming a discount rate of 14 percent, eliminating an additional staff position of $32,500 drastically affects the economic feasibility assessment. First, the breakeven time drops from 4.54 years to just 3.31 years. Next, it would increase the internal rate of return from 17.05 percent to 28.72 percent. Overall NPV jumps from $27,534 to $139,109.52 Assuming a discount rate of...
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