Question

Problem 1

Implementing an e-commerce website has a projected net economic benefit of $ 40,000/year during the next five years. The recurring costs of this project are $ 10,000/year, and the initial cost of implementing the website is $ 50,000. Assuming that 10 percent is the estimated discount rate, do the following:

1. Calculate the net present value of these costs and benefits
2. Calculate the overall return on investment
3. Perform a break-even analysis and estimate when the actual break-even occurs
4. Generate a graphical representation in the case that the project breaks even

Answer 1

Year	Cash flow	PV @ 10%	Present value
0	-50000	1	$ -50,000.00
1	30000	0.90909091	$ 27,272.73
2	30000	0.82644628	$ 24,793.39
3	30000	0.7513148	$ 22,539.44
4	30000	0.68301346	$ 20,490.40
5	30000	0.62092132	$ 18,627.64
			$ 63,723.60
Alternative method
Year=	0	1	2	3	4	5
Benefit	0	40000	40000	40000	40000	40000
Cost	50000	10000	10000	10000	10000	10000
Net	-50000	30000	30000	30000	30000	30000
Disc. Factor	1.10^0=1	1.10^1=	1.10^2=	1.10^3=	1.10^4=	1.10^5=
	1	1.1	1.21	1.331	1.4641	1.61051
Disc Cash Flow	-50000	27272.7273	24793.38843	22539.444	20490.4037	18627.6397
NPV	$    63,723.60
Overall return on investment = IRR	52.80%
Discount rate	NPV
0%	$ 1,00,000.00
10%	$    63,723.60
20%	$    39,718.36
30%	$    23,067.09
40%	$    11,054.92
50%	$      2,098.77
60%	$    -4,768.37
70%	$ -10,161.27
80%	$ -14,484.58
90%	$ -18,012.87
100%	$ -20,937.50
BEP = NPV = 0 at IRR 52.80%