A potential software project will cost $17000 now, $2000 one year from now, $1000 2 years from now, and $1000 3 years m now. It will provide benefits of $28000 after it is installed 1 year from now, $30000 2 years from now, and $35000 3 years m now. Calculate the Present Value of the costs and benefits for each year and the overall Net Present Value of the project. Use discount rate of 3%. (Hint: set up a spreadsheet...) Year 0 SO ? Benefits PV of Benefits $17,000 Costs PV of Costs? Year 1 $28,000 ? Show Transcribed Text $2,000 ? Year 2 $30,000 ? $1,000 ? Year 3 $35,000 ? $1,000 ? Net Present Value (NPV)= Total PV of Benefits - Total PV of Costs Total Benefits Total Costs he Payback Period is the length of time required to recover the cost of an investment. Management uses Payba od to assess the risk of an investment - the longer the Payback Period, the higher the investment risk. What is back Period for the project in question #2 above? What is the ROI for the project in question #2 above? oject's Return On Investment (ROI), can be defined as at do I get back ('return') for the money I'm being asked to spend ('investment')? at is it really worth (the "ROI")? = NPV / Total Cost (expressed as a percentage)
A potential software project will cost $17000 now, $2000 one year from now, $1000 2 years from now, and $1000 3 years m now. It will provide benefits of $28000 after it is installed 1 year from now, $30000 2 years from now, and $35000 3 years m now. Calculate the Present Value of the costs and benefits for each year and the overall Net Present Value of the project. Use discount rate of 3%. (Hint: set up a spreadsheet...) Year 0 SO ? Benefits PV of Benefits $17,000 Costs PV of Costs? Year 1 $28,000 ? Show Transcribed Text $2,000 ? Year 2 $30,000 ? $1,000 ? Year 3 $35,000 ? $1,000 ? Net Present Value (NPV)= Total PV of Benefits - Total PV of Costs Total Benefits Total Costs he Payback Period is the length of time required to recover the cost of an investment. Management uses Payba od to assess the risk of an investment - the longer the Payback Period, the higher the investment risk. What is back Period for the project in question #2 above? What is the ROI for the project in question #2 above? oject's Return On Investment (ROI), can be defined as at do I get back ('return') for the money I'm being asked to spend ('investment')? at is it really worth (the "ROI")? = NPV / Total Cost (expressed as a percentage)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:2. A potential software project will cost $17000 now, $2000 one year from now, $1000 2 years from now, and $1000 3 years
from now. It will provide benefits of $28000 after it is installed 1 year from now, $30000 2 years from now, and $35000 3 years
from now. Calculate the Present Value of the costs and benefits for each year and the overall Net Present Value of the project. Use
a discount rate of 3%.
(Hint: set up a spreadsheet...)
Year 0
SO
?
Benefits
PV of
Benefits
Costs
PV of Costs ?
$17,000
Year 1
$28,000
?
Show Transcribed Text
$2,000
?
Year 2
$30,000
?
$1,000
?
Year 3
$35,000
?
$1,000
?
Net Present Value (NPV) = Total PV of Benefits - Total PV of Costs
Total
Benefits
Total
Costs
3. The Payback Period is the length of time required to recover the cost of an investment. Management uses Payback
Period to assess the risk of an investment - the longer the Payback Period, the higher the investment risk. What is the
Payback Period for the project in question #2 above?
4. What is the ROI for the project in question #2 above?
A project's Return On Investment (ROI), can be defined as
What do I get back ('return') for the money I'm being asked to spend ('investment')?
What is it really worth (the "ROI")?
ROI NPV/Total Cost (expressed as a percentage)
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