Question

A major drug store chain plans to spend $35 million in capital investments for its new

inventory loss reduction initiative. By upgrading the current inventory tracking system using

advanced RFID technology, the company estimates the annual maintenance cost of $210,000.

The salvage value of the system at the end of year 13 is expected to be 0.4% of the original

investment. Drugstore chain wants to know the minimum annual inventory loss prevention

required to make this investment economically acceptable, if the company's minimum attractive

rate of return is 8% per year.

Answer 1