Question: In the Past Company X has always created invoices for

In the Past Company X has always created invoices for goods supplied using a manual system. The cost of this last year was £50,000. However, it is accepted that these costs will rise by 10% next year and continue to do so at that rate for the foreseeable future. An alternative is available using established software. Company Y is offering a solution which has an initial cost of £200,000, with annual maintenance cost of £20,000 a year. Company Z is offering identical software on a leasing agreement costing £67,500 a year. Given that the prevailing interest rate is 5%, should company X adopt the software solutions of either company Y or Z?
Table of discount factors for a 5% rate of interest

Year
Discount Factor

1
0.9524

2
0.9070

3
0.8638

4
0.8227

5
0.7835



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  • CreatedOctober 20, 2012
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