According to the results of the surveys deployed by your team, users preferred two competing revenue structures one-time membership fee and advertising.

Scenario 1: One-Time Membership Fee

Students pay a one-time membership fee of $20. It is anticipated that membership will grow as word spreads about this new service. In the first year, you expect to sign up 100 new members. In the second year, you anticipate adding 1,000 more members, followed by an additional 2,500 in the third year, 5,000 in the fourth year, and 10,000 in the fifth year.

Scenario 2: Advertising

In the first year, you hope to sell $10,000 worth of advertising. Every year thereafter, you hope to double the amount of advertising you sell based on the prior years sales.

Review the handout entitled Calculating Net Present Value, Payback Period, and Return on Investment and the Economic Analysis spreadsheet created based on the RMO example summarized in Figure C-1 of the handout. Use this spreadsheet as a starting point to design your own spreadsheet for the two scenarios above. Use a 10% discount factor when calculating net present value.

Calculate the NPV, Payback Period, and ROI for both scenarios. In both cases, initial development costs are estimated at $50,000 and ongoing costs at $10,000 per year. Also, an additional $2,000 per year expense is anticipated beginning in year 3 for system repair costs. In your spreadsheet, create a tab called Membership and put your calculations for the first scenario on that sheet. Likewise, create another tab called Advertising for the second scenario.

Please see figure C-1 attached

RMO cost/benefit analysis Year o Year 1 Year 2 Year 3 Year 4 Year 5 Total 1 Value of benefits $ $889,000 $1,139,000 $1,514,000 $2,077,000 $2,927.000 2 Discount factor (10%) 1 0.9091 0.8264 0.7513 0.6830 0.6209 $- $808,190 $941,270 $1,137,468 $1,418,591 $1,817,374 $6,122,893 3 Present value of benefits 4 Development costs $11,336,000) $11,336,000) 5 Ongoing costs $1241,000) $1241,000) $(241,000) $(241,000) $(241,000) 6 Discount factor (10%) 1 0.9091 0.8264 0.7513 0.6830 0.6209 7 Present value of costs $- $1219,093) $1199,162) $1181,063 $(164,603) $(149,637) $1913,559) $11,336,000) $589,907 8 PV of net of benefits and costs $742,107 $956,405 $1,253,988 $1,667,737 9 Cumulative NPV $11,336,000) $1746,903) $14.796) $951,604 $2,205,597 $3,873,334 10 Payback period 2 years +4796/(4796 +951,609) = 2 +.005 or 2 years and 2 days 16,122,893 - (1,336,000+ 913,559]] /(1,336,000+ 913,559) = 172.18% 11 5-year relurn on investment Figure C-1 Net present value, payback, and return on investment calculations for RMO continual multiplication of the previous year's factor by 1/(1 + discount rate). The discount factors are given in line 2 and repeated on line 6. On line 3 is the present value of each of the future annual benefits, and line 7 has the present value of the future operating costs. Finally, line 8 combines lines 3 and 7 for each year of the benefits and costs. To obtain the net present value across all the years, you combine the amounts in each col- umn of row 8. Figure C-1 shows a running accumulation, year by year, in row 9. As the figure shows, at the end of five years, the total NPV for this investment is $3,873,334