Hardware Acquisition Costs: $ 172,625 (current year)

Software Development Costs: $ 99,420 (current year)

Sale of the Old Computer: $ 59,400 (c+1)

Training / Installation: $ 43,600 (c+1)

Data Conversion Costs $ 10,200 (c+1)

Salvage Value: New System: $ 20,250

Ongoing Annual Operational Costs:

[assume there is a 3% growth-rate or inflation]

Old System 93,800 (current year)

New (Proposed) System 72,150 (beginning current + 1)

Expected Additional Gross Profit

attributed to the new (proposed) system:

43,500 year current+1 (5% growth per year)

Question 1: (5 points) What is the net developmental cost of the new system? Show calculation.

Question 2: (10 points) What is the payback period of this investment (if any)? Show calculation.

Question 3: (17 points) Assume a cost of capital of 10%, and as a simplifying assumption, a zero tax rate. The present value of $ 1 from one to five years hence is:

Year 1. .909

Year 2 .826

Year 3 .751

Year 4 .683

Year 5. .621

Calculate the net present value of this investment through year 5. Show all calculations. Comment on the meaning of your payback and NPV results. (5 points)