Question
A system for a business will cost $30,000 to develop in the initial year (Year 0) and then cost $4,500 per year to maintain over
A system for a business will cost $30,000 to develop in the initial year (Year 0) and then cost $4,500 per year to maintain over the remaining years of a 5 year period (Year 1,2,3&4). During the initial year the system will produce no benefits (Year 0), however after the system is implemented it is expected to show benefits for the business of $20,000 per year for each of the remaining years (Year 1,2,3&4). Assuming a 6% discount rate, and using the following table, determine the Net Present Value (NPV) for this business.
Periods | 8% |
1 | 0.926 |
2 | 0.857 |
3 | 0.794 |
4 | 0.735 |
5 | 0.681 |
Answer this question by completing the table provided below. Values must be entered for each of the non highlighted cells within the table.
1. (10 Marks) A system for a business will cost $30.000 to develop in the initial year (Year O) and then cost $4.500 per year to maintain over the remaining years of a 5 year period (Year 1,2,3&4). During the initial year the system will produce no benefits (Year 0), however after the system is implemented it is expected to show benefits for the business of $20,000 per year for each of the remaining years (Year 1.2.3&4). Assuming a 6% discount rate, and using the following table, determine the Net Present Value (NPV) for this business. Periods 1 2 3 4 5 8% 0.926 0.857 0.794 0.735 0.681 2 Student name: Student Number: Answer this question by completing the table provided below. Values must be entered for each of the non highlighted cells within the table. Year 0 Year 1 Year 2 Year 3 Year 4 Total Benefits PV Factor (8%) PV of Benefits Costs PV Factor (8%) PV of Costs Net Present Value
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