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
Related questions
Question
How did they come up with the Total Project Benefit Costs, Yearly
![2015
2016
2017
2018
2019
Total
Increased sales
500,000
530,000
561,800
595,508
631,238
Reduction in customer complaint calls
70,000
70,000
70,000
70,000
70,000
Reduced inventory costs
68,000
68,000
68,000
68,000
68,000
TOTAL BENEFITS:
638,000
668,000
699,800
733,508
769,238
PV OF BENEFITS:
619,417
629,654
640,416
651,712
663,552
3,204,752
PV OF ALL BENEFITS:
619,417
1,249,072
1,889,488
2,541,200
3,204,752
2 Servers @ $125,000
250,000
Printer
100,000
Software licenses
34,825
Server software
10,945
Development labor
1,236,525
TOTAL DEVELOPMENT COSTS:
1,632,295
Hardware
54,000
81,261
81,261
81,261
81,261
Software
20,000
20,000
20,000
20,000
20,000
Operational labor
111,788
116,260
120,910
125,746
130,776
TOTAL OPERATIONAL COSTS:
185,788
217,521
222,171
227,007
232,037
TOTAL COSTS:
1,818,083
217,521
222,171
227,007
232,037
PV OF COSTS:
1,765,129
205,034
203,318
201,693
200,157
2,575,331
PV OF ALL COSTS:
1,765,129
1,970,163
2,173,481
2,375,174
2,575,331
TOTAL PROJECT BENEFITS COSTS:
(1,180,083)
450,479
477,629
506,501
537,201
YEARLY NPV:
(1,145,712)
424,620
437,098
450,019
463,395
629,421
CUMULATIVE NPV:
(1,145,712)
(721,091)
(283,993)
166,026
629,421
RETURN ON INVESTMENT:
24.44%
(629,421/2,575,331)
BREAK-EVEN POINT:
3.63 years
[break-even occurs in year 4; (450,019 – 166,026)/450,019 = 0.63]
This service is currently provided by competitors
Improved customer satisfaction
INTANGIBLE BENEFITS:](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc501e0f4-4d66-4b51-9525-2639a7285ed9%2F45cd14f4-ed1a-4d6b-af7c-c855f38db344%2F2hztslm_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2015
2016
2017
2018
2019
Total
Increased sales
500,000
530,000
561,800
595,508
631,238
Reduction in customer complaint calls
70,000
70,000
70,000
70,000
70,000
Reduced inventory costs
68,000
68,000
68,000
68,000
68,000
TOTAL BENEFITS:
638,000
668,000
699,800
733,508
769,238
PV OF BENEFITS:
619,417
629,654
640,416
651,712
663,552
3,204,752
PV OF ALL BENEFITS:
619,417
1,249,072
1,889,488
2,541,200
3,204,752
2 Servers @ $125,000
250,000
Printer
100,000
Software licenses
34,825
Server software
10,945
Development labor
1,236,525
TOTAL DEVELOPMENT COSTS:
1,632,295
Hardware
54,000
81,261
81,261
81,261
81,261
Software
20,000
20,000
20,000
20,000
20,000
Operational labor
111,788
116,260
120,910
125,746
130,776
TOTAL OPERATIONAL COSTS:
185,788
217,521
222,171
227,007
232,037
TOTAL COSTS:
1,818,083
217,521
222,171
227,007
232,037
PV OF COSTS:
1,765,129
205,034
203,318
201,693
200,157
2,575,331
PV OF ALL COSTS:
1,765,129
1,970,163
2,173,481
2,375,174
2,575,331
TOTAL PROJECT BENEFITS COSTS:
(1,180,083)
450,479
477,629
506,501
537,201
YEARLY NPV:
(1,145,712)
424,620
437,098
450,019
463,395
629,421
CUMULATIVE NPV:
(1,145,712)
(721,091)
(283,993)
166,026
629,421
RETURN ON INVESTMENT:
24.44%
(629,421/2,575,331)
BREAK-EVEN POINT:
3.63 years
[break-even occurs in year 4; (450,019 – 166,026)/450,019 = 0.63]
This service is currently provided by competitors
Improved customer satisfaction
INTANGIBLE BENEFITS:
Transcribed Image Text:Calculation
Definition
Formula
Present Value (PV)
The amount of an investment today
compared to that same amount in the future,
taking into account inflation and time.
Amount
(1 + interest rate)n
n = number of years in future
Net Present Value (NPV)
The present value of benefit less the present
value of costs.
PV Benefits – PV Costs
Total benefits – Total costs
Return on Investment (ROI) The amount of revenues or cost savings results
from a given investment.
Total costs
Break-Even Point
The point in time at which the costs of the
project equal the value it has delivered.
Yearly NPV* - Cumulative NPV
Yearly NPV*
*Use the Yearly NPV amount from the first year in which
the project has a positive cash flow.
Add the above amount to the year in which the project
has a positive cash flow.
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