Determine the NPV for the following: An information system will cost $95,000 to implement over a one-year
Question:
Determine the NPV for the following: An information system will cost $95,000 to implement over a one-year period and will produce no savings during that year. When the system goes online the following year, the company will save $30,000 during the first year of operation. For the next four years, the savings will be $25,000 per year. In addition to the initial one-time development cost, for each year of operation, the operating cost will be 10% of the saving of that year.
Assuming a 5 percent discount rate, what is the NPV of the system?
What if the discount rate is changed to 12%?
I set up the computation for you as shown in the table below for discount rate of 5%. Copy and paste the table in Excel and complete the NPV computation. Then you need to repeat the table to compute for 12% discount rate. Are these two cases economical viable? Submit your Excel spreadsheet with these two tables with your explanation. NOTE: I will inspect the formula in the cell. DO NOT HARD CODE THE NUMBERS. YOU SHOULD NOT USE A FINANCIAL CALCULATOR TO DO THE COMPUTATION AND MANUALLY TYPE IN THE NUMBERS.
Note: PV Factor=1/(1+r)^n Where r is the rate of return (discount rate) and n is the number of periods. For example, the PV factor of year 1 is equal to 1/(1+0.05)^1 =0.952381 as shown in discount factor of Year 1. You will need to fill in the cells with ??? and compute the NPV.