4 (TVM) Case Study Investment (Not Discount rate (Desired Rate 13.00% of Return Background: Company is considering developing a new technology that will cost $50,000 to develop. Once its working, the new technology will save the company $15,000 per year for an estimated 7 years. However, there will be no benefits for the first 3 years after the investment as the company finishes the technology through increased sales. The company has a 13% desired return on investment. discounted) Year 1 Year 2 Year 3 Actual Cash Flow $ (50,000) $ $ Year 4 15,000 $ PV Factor 1.0000 0.8850 0.7831 0.6931 0.6133 Year 5 15,000 $ 0.5428 Year 6 15,000 $ Year 7 15,000 $ Year 8 Year 9 Year 10 0.4803 0.4251 Present Value of Cash Flow by Year $ (50,000) $ 9,200 5 8,141 $ 7,205 $ 6,376 5 15,000 $ 0.3762 5,642 5 15,000 $ 15,000 0.3329 0.2946 4,993 $ 4,419 Present Value of future cash flows $ 45,976 Questions Answers Initial Investment 50,000 Net Present Value Internal Rate of Retur Project Profitability Index (4,024) 11.56% (0.08) What is the total future benefit of the technology without discounting? Should the company invest in the technology (Yes or Noj? Would you reach this same conclusion if there was only a 2-year lag before the benefits started (rather than a 3-year lag)? What does this tell you about the time value of money?