Question

his Question: 50 pts 1 of 3 (0 complete) This Quiz: 100 pts poss Your firm has the option of making an investment in new software that will cost $231,725 today, but will save the company money over several years. You estimate that the software will provide the savings shown in the following table over its 5-year life. Should the firm make this investment if it requires a minimum annual return of 6% on all investments? The present value of the stream of savings estimates is (Round to the nearest dollar) Should the firm make this investment if it requires a minimum annual return of 6% on all investments? (Select the best answer below) Yes O NO Click to select your answer(s). O be to each ASUS VivoBook WORDOUDOPODA2P2 AIDOGBORDUU = 5 nnnBN MM shiho shita la 2

Answer 1

A B C Year Cash flow PV factor @6% Present value 1 59000 0.9434 55660.38 82600 0.8900 73513.71 3 76700 0.8396 64398.80 41300 0.7921 32713.47 23600 0.7473 17635.29 Present value of the stream of savings estimates 243921.64 b) 11 12 13 o 14 15 نما يباد Cash flow PV factor @6% -231725 1 59000 82600 76700 4 41300 23600 NPV Present value 1 -231725 0.9434 55660.38 0.8900 73513.71 0.8396 64398.80 0.7921 32713.47 0.7473 17635.29 12196.64 5 Yes. The NPV is positive. So, firm should make this investment.

Excel formula:

A B C Year Cash flow PV factor @6% Present value 1 59000 =1/(1+0.06)^B3 =C3*D3 82600 =1/(1+0.06)^B4 =C4*D4 76700 =1/(1+0.06)^B5 =C5*D5 41300 =1/(1+0.06)^B6 =C6*D6 23600 =1/(1+0.06)^B7 =C7*D7 Present value of the stream of savings estimates =SUM(E3:E7) Year Cash flow -231725 59000 82600 76700 41300 23600 PV factor @6% =1/(1+0.06)^B12 =1/(1+0.06)^B13 =1/(1+0.06)^B14 1=1/(1+0.06)^B15 =1/(1+0.06)^B16 =1/(1+0.06)^B17 Present value =C12*D12 =C13*D13 =C14*D14 =C15*D15 =C16*D16 =C17*D17 =SUM(E12:E17) NPV