Question

In: Finance

IBM networks want to modernize their networking system. Proposals have been received from two major software...

IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm's annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria. Select

Solutions

Expert Solution

Answer:- Second Proposal should be recommended on the basis of Net Present Value criteria as the NPV of second proposal is higher the NPV of the first proposal.

Explanation:-

Following is the Excel Sheet showing NPV calculation of both proposals:-

Following is the Formula sheet of above excel sheet for easy understanding of the calculations done:-

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Facebook is considering two proposals to overhaul its networkinfrastructure. They have received two bids. The...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $22 million upfront investment and will generate $20 million in savings for Facebook each year for the next 3 years. The second bid from Cisco requires a $84 million upfront investment and will generate $60 million in savings each year for the next 3 years.a. What is the IRR for Facebook associated with each bid?b. If the...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $ 22million upfront investment and will generate $ 20 million in savings for Facebook each year for the next 33 years. The second bid from Cisco requires a $98 million upfront investment and will generate $60 million in savings each year for the next 33 years. a. What is the IRR for Facebook associated with each? bid?...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $ 20 million upfront investment and will generate $ 20 million in savings for Facebook each year for the next 3 years. The second bid from Cisco requires a $ 101 million upfront investment and will generate $ 60 million in savings each year for the next 3 years. a. What is the IRR for Facebook associated...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The...
Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $ 23 million upfront investment and will generate $ 20 million in savings for Facebook each year for the next 33 years. The second bid from Cisco requires a $ 80 million upfront investment and will generate $ 60 million in savings each year for the next 33 years. a. What is the IRR for Facebook associated...
FacebookFacebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The...
FacebookFacebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $25 million upfront investment and will generate $20 million in savings for FacebookFacebook each year for the next 3 years. The second bid from Cisco requires a $93 million upfront investment and will generate $60 million in savings each year for the next 3 years A. What is the IRR for FacebookFacebook associated with each bid? B....
Two proposals for manufacturing a new product have been proposed to the board of directors of...
Two proposals for manufacturing a new product have been proposed to the board of directors of ‘Salamis’ Ltd. Market research indicates that there is strong demand for the product. Proposal 1: The company will acquire plant costing £900,000. Fixed expenses (other than depreciation) would amount to £570,000 per annum and variable expenses per unit would be £350. Proposal 2: The company will acquire plant costing £800,000. Fixed expenses (other than depreciation) would amount to £240,000 per annum and variable expenses...
RUN THIS PROGRAM ON NETBEANS As a Software Developer, you have received a requirement from a...
RUN THIS PROGRAM ON NETBEANS As a Software Developer, you have received a requirement from a Company to implement a prototype for its payroll system. You receive the following specifications: If an employee works more than its regular hours, it is considered overtime and it will be paid based on the employee’s experience. All employees are paid biweekly (80 hours) Employee taxes: 1% This company manages three categories of workers based on employee’s experience. Group 1 (Silver) o Pay rate:...
Imagine that you are a system analyst of a software development company and you have been...
Imagine that you are a system analyst of a software development company and you have been assigned to a team that will be developing the information systems for the clients. For now as a team leader for the data design team, you have been asked to the read and understand the following case studies and prepare the data design as specified. Creating an Entity Relationship Diagram, Creating a Context Level Data Flow Diagram. Create the ER diagram for library management...
Donna and Keith want to sell their business. They have received two offers. If they accept...
Donna and Keith want to sell their business. They have received two offers. If they accept Offer A, they will receive $61,000 immediately and $20,000 in three years. If they accept Offer B, they will receive $37,000 now and $3,000 at the end of every six months for 5 years with the first payment received 6 months from now. If interest is 6.67% annually, which offer is preferable for Donna and Keith? Give proper explanation with formula, not answer solved...
Random and independent samples of 90 recent prime time airings from each of two major networks...
Random and independent samples of 90 recent prime time airings from each of two major networks have been considered. The first network aired a mean of 109.3 commercials during prime time, with a standard deviation of 5.7 commercials. The second network aired a mean of 110.7 commercials, with a standard deviation of 5.4 commercials. As the sample sizes are quite large, the population standard deviations can be estimated using the sample standard deviations. Construct a 90% confidence interval for −μ1μ2...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT