Problems – Find the Net Present Value and Benefit Cost Ratio for the following:
1.An investment in new software is expected to have the following cash flows over a three-year period. The discount rate is 12 percent?
Year Cash Flow
0 -$28,900
1 $12,450
2 $19,630
3 $ 2,750
Year Cash Inflows
1 $4,375
2 $ 0
3 $8,750
4 $4,100
Year Project A Project B
0 -$48,000 -$126,900
1 $18,400 $ 69,700
2 $31,300 $ 80,900
3 $11,700 $ 0
Year Project A Project B
0 -$240,000 -$198,000
1 $ 0 $110,800
2 $ 0 $ 82,500
3 $325,000 $ 45,000
PS: I need to show the work of how I arrived to the answer. Thanks. I need this today, if possible, please.
NPV = PV of Cash Inflows - PV of Cash Outflows
Part A:
Year | CF | PVF@ 12% | Disc CF |
0 | $ -28,900.00 | 1.0000 | $ -28,900.00 |
1 | $ 12,450.00 | 0.8929 | $ 11,116.07 |
2 | $ 19,630.00 | 0.7972 | $ 15,648.92 |
3 | $ 2,750.00 | 0.7118 | $ 1,957.40 |
NPV | $ -177.62 |
Part B:
Year | CF | PVF @11% | Disc CF |
0 | $ -7,500.00 | 1.0000 | $ -7,500.00 |
1 | $ 4,375.00 | 0.9009 | $ 3,941.44 |
2 | $ - | 0.8116 | $ - |
3 | $ 8,750.00 | 0.7312 | $ 6,397.92 |
4 | $ 4,100.00 | 0.6587 | $ 2,700.80 |
NPV | $ 5,540.16 |
Part C:
Year | CF | PVF @13% | Disc CF |
0 | $ -10,600.00 | 1.0000 | $ -10,600.00 |
1 | $ 1,750.00 | 0.8850 | $ 1,548.67 |
2 | $ 1,750.00 | 0.7831 | $ 1,370.51 |
3 | $ 1,750.00 | 0.6931 | $ 1,212.84 |
4 | $ 1,750.00 | 0.6133 | $ 1,073.31 |
NPV | $ -5,394.68 |
Part D:
Project A:
Year | CF | PVF @11% | Disc CF |
0 | $ -48,000.00 | 1.0000 | $ -48,000.00 |
1 | $ 18,400.00 | 0.9009 | $ 16,576.58 |
2 | $ 31,300.00 | 0.8116 | $ 25,403.78 |
3 | $ 11,700.00 | 0.7312 | $ 8,554.94 |
NPV | $ 2,535.30 |
Project B:
Year | CF | PVF @10% | Disc CF |
0 | $ -1,26,900.00 | 1.0000 | $ -1,26,900.00 |
1 | $ 69,700.00 | 0.9091 | $ 63,363.64 |
2 | $ 80,900.00 | 0.8264 | $ 66,859.50 |
3 | $ - | 0.7513 | $ - |
NPV | $ 3,323.14 |
Project B is considered as Project B has higher NPV.
Part E:
Project A:
Year | CF | PVF @8% | Disc CF |
0 | $ -2,40,000.00 | 1.0000 | $ -2,40,000.00 |
1 | $ - | 0.9259 | $ - |
2 | $ - | 0.8573 | $ - |
3 | $ 3,25,000.00 | 0.7938 | $ 2,57,995.48 |
NPV | $ 17,995.48 |
Project B:
Year | CF | PVF @8% | Disc CF |
0 | $ -1,98,000.00 | 1.0000 | $ -1,98,000.00 |
1 | $ 1,10,800.00 | 0.9259 | $ 1,02,592.59 |
2 | $ 82,500.00 | 0.8573 | $ 70,730.45 |
3 | $ 45,000.00 | 0.7938 | $ 35,722.45 |
NPV | $ 11,045.50 |
Project A is selected as it has Higher NPV.
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