A new computer system will require an initial outlay of $17,000, but it will increase the...

A new computer system will require an initial outlay of $17,000, but it will increase the firm’s cash flows by $3,400 a year for each of the next 7 years.

a. Calculate the NPV and decide if the system is worth installing if the required rate of return is 10%.

b. Calculate the NPV and decide if the system is worth installing if the required rate of return is 15%.

Expert Solution

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year	Cash flow	PVIF @ 10%	PVIF @ 15%	Present value with 10% cost of eqiuty	Present value with 15% cost of eqiuty
0	-17000	1.0000	1.0000	(17,000.00)	(17,000.00)
1	3400	0.9091	0.8696	3,090.91	2,956.52
2	3400	0.8264	0.7561	2,809.92	2,570.89
3	3400	0.7513	0.6575	2,554.47	2,235.56
4	3400	0.6830	0.5718	2,322.25	1,943.96
5	3400	0.6209	0.4972	2,111.13	1,690.40
6	3400	0.5645	0.4323	1,919.21	1,469.91
7	3400	0.5132	0.3759	1,744.74	1,278.19
				(447.38)	(2,854.57)

ans a) NPV @ 10% =			(447.38)
ans b) NPV @ 15% =			(2,854.57)

jeff jeffy answered 1 year ago

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