A new IS project has been proposed that is expected to 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.

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 firstyear?

Transcribed Image Text:

Year 1 Year 2 Year 3 Year 4 Year 5 Increased revenue Cost savings Depreciation Initial expense $100 $150 $200 $250 $0 $50 $50 $50 $50 $o $75 $75 $75 75 $500