Question

Blossom Corp. management is investigating two computer systems. The Alpha 8300 costs $2,991,425 and will generate cost savings of $1,560,125 in each of the next five years. The Beta 2100 system costs $3,323,500 and will produce cost savings of $1,340,750 in the first three years and then $2 million for the next two years. The company’s discount rate for similar projects is 14 percent. What is the NPV of each system? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

NPV of Alpha system $enter a dollar amount rounded to 0 decimal places

NPV of Beta system $enter a dollar amount rounded to 0 decimal places

Which one should be chosen based on the NPV?

Answer 1

Alpha
Discount rate	0.14
Year	0	1	2	3	4	5
Cash flow stream	-2991425	1560125	1560125	1560125	1560125	1560125
Discounting factor	1	1.14	1.2996	1.481544	1.6889602	1.925415
Discounted cash flows project	-2991425	1368531	1200466	1053040	923719.24	810280
NPV = Sum of discounted cash flows
NPV Alpha =	2364610.45
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
beta
Discount rate	0.14
Year	0	1	2	3	4	5
Cash flow stream	-3323500	1340750	1340750	1340750	2000000	2000000
Discounting factor	1	1.14	1.2996	1.481544	1.6889602	1.925415
Discounted cash flows project	-3323500	1176096	1031664	904968.1	1184160.6	1038737
NPV = Sum of discounted cash flows
NPV beta =	2012126.02
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor