Question

Suppose that you are interested in buying a new computer. Create a cost benefit analysis that illustrates the return on investment that you would receive from making this purchase. Computer-related websites (e.g., Apple, Dell, HP) should have real tangible costs that you can include in your analysis. Project your numbers out to include a three-year period and provide the net present value of the final total.

Answer 1

Solution - Project analysis of purchasing a computer for NPV calculation

Assumption :-

Discount rate = 10%

Purchase cost = $1000

Model of Cost of Purchase and other related cost and present value of cost

Particulars	Year 0	Year 1	Year 2	Year 3	Total
Purchase cost	$1000				$1000
Other cost
Anti virus license		$20	$20	$20	$60
Internet Subscription		$100	$100	$100	$300
Other accessories of computer		$50	$50	$50	$150
Total Cost	$1000	$170	$170	$170	$1510
Annuity Factor for present value calculation Rate = 10% Present value factor = [1/(1+r)]n Present Value Factor = [1/(1+0.1)]1,2,3		0.909	0.826	0.751
Present Value of costs	$1000	$154.53	$140.42	$127.67	$1422.62

Calculation of Present Value of benefits in terms of time savings from not using outside cafe or computer lab

Particulars	Year 1	Year 2	Year 3	Total
Time Saving benefits	$1200	$1300	$1400	$3900
Present value factor	0.909	0.826	0.751
Present value of all benefits	$1090.8	$1073.8	$1051.4	$3216

Net Present Value calculation

NPV = Preseny value of benefits - Present value of Costs

Particulars	Year 0	Year 1	Year 2	Year 3	Total
Present value of cost	$1000	$154.53	$140.42	$127.67	$1422.62
Present value of benefits		$1090.8	$1073.8	$1051.4	$3216
NPV	($1000)	$936.27	$933.38	$923.73	$1793.38