Suppose a library is considering the purchase of a new information system that will give users access to a number of on-line databases for 5 years. Benefits are estimated to be $100,000 per year including both cost savings and user benefits. The system has a onetime set up cost of $407,004. Assume the discount rate is 7%. There are no other costs or benefits.

What is the net present value of the project?

What would happen to our discount rate if we expected a large increase in the inflation rate over the next 5 years?