Question: Lab Exercise A new IS project has been proposed that will produce not only cost savings but also an increase in revenue. The initial costs

Lab Exercise

A new IS project has been proposed that will produce not only cost savings but also an increase in revenue. The initial costs to establish the system are estimated to be $500,000.

The remaining cash flow data is presented in the following table.

Year 1

Year 2

Year 3

Year 4

Year 5

Increased Revenue

$0

$100

$150

$200

$250

Cost Savings

$0

$ 50

$ 50

$ 50

$ 50

Depreciation

$0

$ 75

$ 75

$ 75

$ 75

Initial Expense

$500

Note: All amounts are in 000s.

Do not include salvage value

Provide and in Excel

a. Using a spreadsheet program, calculate the return on investment (ROI) for this project. Assume that the cost of capital is 7 percent.

b. How would the rate of return change if the project delivered $50,000 in additional revenue and generated cost savings of $25,000 in the first year?

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