CIS 372 CHAPTER 7

ASSIGNMENT

Turn to Part 3 of the Systems Analyst’s Toolkit (Toolkit 3, Financial Analysis Tools) and review the concept of net present value (NPV).  I posted its ppt  in this folder for your reference.

What to Do:

Determine the NPV for the following: An information system will cost $95,000 to implement over a one-year period and will produce no savings during that year. When the 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?

 

What if the discount rate is changed to 12%? 

 

I set up the computation for you as shown in the table below for discount rate of 5%.  Copy and paste the table in Excel and complete the NPV computation. Then you need to repeat the table to compute for 12% discount rate.  Are these two cases economical viable?  Submit your Excel spreadsheet with these two tables with your explanation in Blackboard.

Note:   

Where ris the rate of return (discount rate) and n is the number of periods.  For example, the PV factor of year 1 is equal to  as shown in discount factor of Year 1.  You will need to fill in the cells with ???  and compute the NPV.