Question

Your firm has the option of making an investment in new software that will cost $188,522 today, but will save the company money over several years. You estimate that the software will provide the savings shown in the following table over its 5-year life, . Should the firm make this investment if it requires a minimum annual return of 6% on all investments? The present value of the stream of savings estimates is $ . (Round to the nearest dollar.) Should the firm make this investment if it requires a minimum annual return of 6% on all investments? (Select the best answer below.) O Yes O No 0 Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year e AWN- Savings estimate $48,000 $67,200 $62,400 $33,600 $19,200 Print Done Click to select your answer(s).

Answer 1

Present value of the stream = CF1/(1+r)^1 + …………CFn/(1+r)^n

= 48000/(1+6%)^1+67200/(1+6%) ^2+62400/(1+6%)^3+33600/(1+6%)^4+19200/(1+6%)^5

=$198,444.73

Yes

(The Present Value of savings is more than the initial outlay of $188522 thus creating positive NPV)