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In a company, the managers decide to purchase a $100,000 accounting ysstem that the project reduces...

In a company, the managers decide to purchase a $100,000 accounting ysstem that the project reduces annual expense by $40,000. Assuming the system has 5 years of life with zero salvage value. The cost of capital is 10%. NEt present value of an annuity of $1 for 5 years at 10% is 3.7908. Calculate net cost or benefit and then calculate net present value.

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Answer #1
Present value of benefits = Present value factor * Annual benefit
=$40000*3.7908
=$151632
Net Present value = $151632-100000
=$51632
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