Save:
Favorite
Share:
Calculator Allowed: Yes

Question

Answer

Transcription of this question: Easy E Booking (EEB)Easy E Booking (EEB) is a small, well-known, reputable and financially stable online hotelreservation service. EEB employees are highly motivated and take great pride in their work.EEB has received recognition for their high quality customer service. Due to an increase in globaldemand, greater competition and changes in technology, the finance director, Maia, has decided toupgrade EEB computers and/or software.Maia has two options:Option A: purchase only a new software called “Book-Fast” from a local software designer.Option B: purchase new computers with installed software called “Global Reach” from amanufacturer abroad _CostTechnical supportFurther payments payable:EmployeesTraining costMaintenance costInsurance costOption Aooo24 hours onsite at EEBNO changeOn-the-job: freeF ree$500 er earOption Booo24 hours onlineAt the end Of their contract 1 5 % Ofemployees to be made redundant,cost: $15000 in year 2Intensive: 2 000 in year 1SIOOO er earer earwan on,The estimated return/total revenue in S per year is shown below:Year 1Year 2Year 3Year 4O tion A10000nooo1700020000O tion B140001680023 80028000The average rate Of return (ARR) Of Option A is 46.25 0/0.Maia is considering using a straight line method Of depreciation.EEB employees favour Option A, even though some Of their competitors using “Book-Fast” havereported problems with the software, including security issues. However, Maia has chosen Option B,which will provide more up-to-date, sophisticated and secure reservation system software. It will alsogive EEB a competitive advantage and an ability to handle a large global volume Of hotel reservations.IC International Baccalaureate Organization, 2013](This question continues on the following page)(Question I continued)(a)(b)(c)(d)(e)(f)Describe one strength and one weakness Of EEB using a straight line methodOf depreciation.Calculate the payback period for Option A (show all your working).Calculate the average rate of return (ARR) for Option B (show all your working).For both Option A and Option B, calculate the net present value (NPV) usinga discount rate Of 4 % (show all your working)Explain one advantage and one disadvantage for EEB Of using the NPV methodOf investment appraisal.Examine Maia’s choice Of Option B.[4 marks][2 marks][4 marks][5 marks][4 marks][6 marks]

Leave a Reply