NPV and cost of prediction error Mossley Corporation's marketing manager proposed the acquisition of laptop computers for all sales representatives. The computers would simplify and speed up order processing and would produce cost savings of $10,000 per year. The total cost of the new computers is $23,000, including tax and delivery charges. There is an additional cost of $4,000 to train the sales representatives to use the computers. Each computer has a useful life of 5 years with no salvage value. The company evaluates capital projects using the net present value method with a 17 percent cost of capital.

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REQUIRED a. Compute the net present value of the computers and determine if they should be acquired. b. Find the sensitivity of error if actual cash savings from using the computer are $9,000 per year. c. Find the cost of prediction error if actual cash savings from using the computers are $9,000 per year and there is no alternative investment.