Question
A new IS project has been proposed that is expected to produce not only cost savings but also an increase in revenue. The initial capital
A new IS project has been proposed that is expected to produce not only cost savings but also an increase in revenue. The initial capital cost to establish the system is estimated to be $500,000. The remaining cash flow data is presented in Table 2.10.
a. Using a spreadsheet program, calculate the payback period, internal rate of return, and net present value for this project. Assume that the cost of capital is 7 percent and the effective tax rate is 40 percent.
b. How would the payback, internal rate of return, and net present value change if the capital cost for the project was $750,000 and the cost savings and increased revenue were decreased by 25 percent each year?
1 2 3 5 6 $500 $50 $75 $100 $115 Capital Increased revenue Cost savings Depreciation expense Operating and maintenance expense $110 $125 $125 $125 $130 $125 $50 $150 $125 $100 $75 $75 $50 $50 $50 $50Step by Step Solution
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