You must procure a new network computer system for your company. You have a choice of two options. The two options are as follows:
                                         Option 1               Option 2
Cost                                  R30 000                 R40 000
Installation Cost             R10 000                 R5 000
Yearly Maintenance      R3 500                     R3 000
Yearly Profit                   R10 000                  R8 000
Project Lifetime            5 years                  8 years

Estimated rate of return Year 0,1,2,3 = 10%, Year 4,5,6 = 8%, Year 7,8 = 5%.

For Option 1:
The NPV for year 0 is:

The NPV for year 1 is:

The NPV for year 2 is:

The NPV for year 3 is:

The NPV for year 4 is:

 The NPV for year 5 is:

The NPV for option 1 is:

For Option 2:
The NPV for year 0 is:

 The NPV for year 1 is:

The NPV for year 2 is:

The NPV for year 3 is:

The NPV for year 4 is:

The NPV for year 5 is:

 The NPV for year 6 is:

The NPV for year 7 is:

The NPV for year 8 is:

The NPV for option 2 is:

 Which is the better option to choose?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below Answer To determine which option is better we need to calculate the Net Present Value NPV for both options and compare them Option 1 NPV in ... View the full answer