As the manager of the pension fund, you are frequently targeted by software companies peddling investment simulation software. You have finally narrowed down your choice to two applications. You need to analyze the options by calculating NPV, IRR and Payback Period based on their purchase price and savings to your company over time. Your staff has prepared a cash-flow table to help you. Year zero shows the purchase price of each application, and the figures listed for years 1-3 represent the savings to the company in successive years.

Year (0) Application I (-$1.5 million) Application II (-$1 million)

Year (1) Application I ($0.8 million) Application II ($0.5 million)

Year (2) Application I ($0.7 million) Application II ($0.24 million)

Year (3) Application I ($0.3 million) Application II ($0.6 million)

You are considering three possible scenarios.

Question 7: If the payback period is two years, which application should be selected?

Question 8: If the required rate of return is 15 percent, which application should be selected?

Question 9: If the selection criterion is IRR, which application should be selected?

Respond to the questions 7, 8, and 9 above by submitting a single, integrated report that shows your supporting data and calculations. Finally, provide a recommendation and rationale for purchasing either Application I or Application II.

Submit your Basic Capital Budget Analysis Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should include your recommendation and rationale for purchasing either Application I or Application II.

Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them in your work.

• 3.1 Identify numerical or mathematical information that is relevant in a problem or situation.
• 3.2 Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.
• 3.3 Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.
• 3.4 Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.
• 10.3 Determine optimal financial decisions in pursuit of an organization's goals.
• 10.4 Make strategic managerial decisions for obtaining capital required for achieving organizational goals.