ABC Sciences, Inc. is considering the installation of a new marketing software package that will allow more accurate sales information concerning the inventory, sales, and deliveries of its pots as well as its vases designed to hold artificial flowers. The information systems (IS) department has submitted a project proposal that estimates the investment requirements as follows: an initial investment of $500,000 to be paid up‐front to a Software Corporation; an additional investment of $100,000 to modify and install the software; and another $50,000 to integrate the new software into the overall information system. Project life is expected to be 12 years from propjet inception, at which time the proposed system will be obsolete for this division and will have to be replaced. The IS department predicts that scheduled software updates will require further expenditures of about $15,000 every second year, beginning in the fourth year. They will not, however, update the software in the last two years of its expected useful life. Projected profits resulting from better and more timely sales information are estimated to be $60,000 in the first year of operation and are expected to peak at $120,000 in the second year of operations. The estimated benefits in the remaining years of the project life are as follows: $80,000, $75,000, $65,000, $90,000, $95,000, $85,000, $80,000, $60,000, $70,000, and $50,000, Submit a report in which you provide answers to the following questions:

1. What is the payback period for the project?

2. If ABC requires a 15 percent hurdle rate for capital investment, conduct a discounted cash flow calculation to determine the NPV.

3. What would happen to the NPV of the project if the inflation rate was expected to be 6% in each of the next 12 years?

 4. Calculate the profitability index.

5. Is the project deemed acceptable?

Answer rating: 100% (QA)

1 What is the payback period for the project Initial Investment 500000 upfront payment 100000 modification and installation 50000 integration 650000 Projected Cash Flows Year 1 60000 Year 2 120000 Yea... View the full answer