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pantera1 [17]
3 years ago
15

an information system will cost $95,000 to implement over a one-year period and will produce no savings during that year. When t

he system goes online the following year, the company will save $30,000 during the first year of operation. For the next four years, the savings will be $20,000 per year. Assuming a 5 percent discount rate, what is the NPV of the system
Business
1 answer:
dangina [55]3 years ago
4 0
Given:
<span>initial cost $95,000 to implement over a one-year period and will produce no savings during that year.
the company will save $30,000 during the first year of operation.
For the next four years, the savings will be $20,000 per year.
5 percent discount rate

Year      Future Value            Factor                Present Value
0                                                                       (95,000)
1               30,000                 (1+0.05)</span>¹              28,571.43<span>
2               20,000                 (1+0.05)</span>²              18,140.59
3               20,000                 (1+0.05)³              17,276.75
4               20,000                 (1+0.05)⁴             16,454.05
5               20,000                 (1+0.05)⁵             15,670.52
Net Present Value                              1,113.34

Present Value = Future Value / Factor

The NPV of the system is 1,113.34
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2. Your grandfather placed $5,000 in a trust fund for you. In 12 years what will be the worth of the savings. If the estimated r
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With compound interest on a principal of $5,000.00 at a rate of 8% per year compounded 1 time per year over 12 years is $12,590.85.

<h3>Compound interest</h3>

Given Data

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  • Time = 12 years
  • Rate = 8%

Assuming a compounded interest approach

A = P + I where

P (principal) = $5,000.00

I (interest) = $7,590.85

Calculation Steps:

First, convert R as a percent to r as a decimal

r = R/100

r = 8/100

r = 0.08 rate per year,

Then solve the equation for A

A = P(1 + r/n)nt

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A = 5,000.00(1 + 0.08)(12)

A = $12,590.85

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