Your friend Wissam is studying the feasibility for opening a new company. He provides you withthe below table indicating the costs and the benefits for the system on 4 vears, with a discountfactor of 11%.When does the system pay back for its cost? (Use cost benefit analysis.)Page 6 of 7Calculate the Present Value (PV) for each year and fill the table. Given the formula to calculate thePV:Pyn= 1/(1 + i)n where n is the number of years and i is the discount rate.Year13Discount factor1.0011%Development$50,000.00costsOperation Costs($30,000.00)($60,000.00)($90,000.00)($100,000.00)Present valueCostsCumulativecostsAnnual benefits$0.00$90,000.00$100,000.00$125,000.00$170,000.00Present valuebenefitsCumulativebenefitsCumulative:Costs + Benefits

system cost $ 50,000 Discount Factor 11% Year Operational Cost Annual Benefit…

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Business

Accounting

When does the system pay back for its cost? (Use cost benefit analysis.) Page 6 of 7

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Your friend Wissam is studying the feasibility for opening a new company. He provides you with
the below table indicating the costs and the benefits for the system on 4 vears, with a discount
factor of 11%.
When does the system pay back for its cost? (Use cost benefit analysis.)
Page 6 of 7
Calculate the Present Value (PV) for each year and fill the table. Given the formula to calculate the
PV:
Pyn= 1/(1 + i)n where n is the number of years and i is the discount rate.
Year
1
3
Discount factor
1.00
11%
Development
$50,000.00
costs
Operation Costs
($30,000.00)
($60,000.00)
($90,000.00)
($100,000.00)
Present value
Costs
Cumulative
costs
Annual benefits
$0.00
$90,000.00
$100,000.00
$125,000.00
$170,000.00
Present value
benefits
Cumulative
benefits
Cumulative:
Costs + Benefits

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