Show all calculations:

The Hospital needs to purchase a new CDI system for use with the current hospital EHR.

One firm (Firm A) requires an up-front payment of $250,000 and an annual maintenance payment of $25,000 at the time the contract is signed. Thereafter, maintenance payments of $30,000 are due at the beginning of each anniversary year for a total of 5 maintenance payments (including the initial payment made at time of purchase).

The other firm (Firm B) requires an up-front payment of $325,000 and an annual maintenance payment of $5,000 at the time the contract is signed. Thereafter, maintenance payments of $7,000 are due at the beginning of each anniversary year for a total of 5 maintenance payments (including the initial payment made at time of purchase).

Installation, other initial set up and equipment costs, will be $60,000 for either product. Both vendors quoted on-site training for staff will cost $5,000 and occur at the time of implementation. No ongoing training costs were noted in either proposal because the $5,000 includes training a trainer.

At the end of the third year, you are required to pay an additional fee for a system and equipment upgrade effective the first of the fourth year. The additional fee is $60,000. Each vendor offers a webinar to train staff on the new upgraded features and the fee is $650. The fee is payable along with the upgrade fee.

The new system will improve operations in the department and is estimated to help the hospital's case mix index and could generated an extra $120,000 over each of the next 5 years. The CFO states that he can earn 5% interest on the hospitals funds. He will not consider any project that yields less than a 20% return. Cost Accounting states the useful life of this acquisition is 5 years, and there is no residual value after 5 years.

1. Calculate the present value of the outlays (costs of each option) and inflows (savings of each option). Show your calculations. (you may use the present value tables in Burton & Dunn Chapter 10 page 199, or the formula calculations as illustrated by the NPV documents in Course Documents Unit 3 on blackboard)

My question is coming to calculating the NPV. I have the equation as PV=C/(1=r)^t

What numbers exactly do you use for the original outflow of the project? More than that, what number are the income generated?