Question
I could really use some help with this system analysis question I got. Thank you!!!! Using the following data, create a table similar to the
I could really use some help with this system analysis question I got. Thank you!!!! Using the following data, create a table similar to the one at the bottom of the page. Note that there are 8 years of data here vs. 5 years in the table. You will have to add the extra 3 years to your table. There is also a different discount factor for each year. Calculate the net present value, the payback period, and the return on investment using a discount rate of 1 percent for the following systems development project. The development costs for the system were $225,000.
Year | Anticipated Annual Benefits | Expected / ongoing Annual Operating Costs | Discount Factors at 1 Percent |
1 | $55,000 | $5,000 | .9901 |
2 | $60,000 | $5,000 | .9803 |
3 | $70,000 | $5,500 | .9706 |
4 | $75,000 | $5,500 | .9610 |
5 | $80,000 | $7,000 | .9515 |
6 | $80,000 | $7,000 | .9242 |
7 | $80,000 | $7,000 | .9327 |
8 | $80,000 | $8,000 | .9235 |
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total RMO cost/benefit analysis Value of benefits $ 889,000 $ 1,139,000 $ 1,514,000 $- 1 $ 2,077,000 0.6830 $2,927,000 0.6209 0.9091 0.8264 0.7513 Discount factor (10%) $ - $ 808,190 $ 941,270 $ 1.137,468 $ 1,418,591 $ 1,817,374 Present value of benefits $6,122,893 Development costs $(1,336,000) $(1,336,000) Ongoing costs $ (241,000) $ (241,000) $ (241,000) $ (241,000) $ (241,000) 0.8264 0.9091 0.7513 0.6830 0.6209 Discount factor (10%) $ (219,093) $ (199,162) $(181,063) $ (164,603) $ (149,637) $1913,559) Present value of ongoing costs $11,336,000) $ 589,097 $ 742,107 $ 956,405 PV of net of benefits and costs $ 1,253,988 $ 1,667,737 Cumulative NPV $11,336,000) $3,873,334 10 Payback period $1746,903) $ (4.769) $951,609 $2,205,597 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 return on investment
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