Consider a hypothetical situation where the U$.$S$.$ Department of Commerce $($DOC$)$ has a $3-$year need

for a specific software program. The DOC must choose between A$)$ purchasing a software package and B$)$

developing the software on its own.

If the agency develops the software on its own, it must purchase equipment totaling $$7,800$ in Year $0.$ Software

development costs in Years $1$ through $3$ are expected to be $$21,500,$$$28,000$ and $$33,500,$ respectively. The agency

will receive benefits from the software in Years $1$ through $3$ in the amounts of $$18,500,$$$22,000$ and $$39,000,$

respectively. At the end of Year $3,$ the agency plans to discontinue using the software, but will sell the software

and the equipment to another party for an estimated $$54,000$ at the end of Year $3.$

On the "Question $4-$Show Work" tab, diagram the costs and benefits. Calculate net benefits, present values of

the components, and NPV of the development scenario. Assume a discount rate of $5\mathrm{.}0\%.$ You must show your

work in the "Question $4-$Show Work excel $"$ tab.

I have the NPV and PV formulas, but not sure how to apply the rule of $72$ to assist with answering

a$.$ What is the NPV$,$ rounded to nearest whole dollar?

Answer:

b$.$ If we know the NPV of the software$-$purchasing scenario $($Option $1)$ is $$53,750,$ can we tell

whether the DOC should purchase the software or develop it in$-$house?

A$.$ The DOC should purchase the software because that option has the highest NPV$.$

B$.$ The DOC should develop the software because it has a greater NPV than the purchasing option.

C$.$ There's insufficient information because the discount rate of the software purchase isn't given.

D$.$ There's insufficient information because the costs and benefits of the software purchase aren't given.

Answer: