Question
Gerties Gizmos develops iPhone apps available on the App Store. David Developer is a contract software engineer who has offered to assist Gerties upgrade its
Gerties Gizmos develops iPhone apps available on the App Store. David Developer is a contract software engineer who has offered to assist Gerties upgrade its Flying Finder drone controller app from version 5.2 to version 6.0, for a flat upfront (immediately payable) consulting fee of $25,000. David has helped Gerties develop all 8 of the previous versions of the Flying Finder over the past five years, with 100% reliability. Gerties expects to have the following results in increased cash flows from developing and rolling out the upgrade: Year One: $10,000. Year Two: $20,000. Year Three: $15,000. Years Four-> Not material Gerties screens it capital decisions based on a payback of 2 years or less, and a positive net present value on the investment using a 15% annual compounded rate of return. Gerties expected cash flows are irregular because the new version will be required for next year under proposed FAA regulations, but the upgrade is expected to be obsolete by year four as technology continues to develop. Requirements: What is the payback period for the proposed capital investment in hiring David Developer? (10 points.) (Show your work.) What is the net present value (NPV) for the proposed capital investment at Gerties required rate of return? (20 points.) (Show your work!)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started