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A company is considering investing in an IT project. The initial cost of the project is...

A company is considering investing in an IT project. The initial cost of the project is $95,000, and the annual expenses are estimated to be $12,000. This project has a useful life of 10 years and starts to have benefits in the fifth year. The annual benefits from year 5 to year 10 are $65,000. The interest rate is 7% per year. Would you recommend the company to invest in the project based on future worth analysis?

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Answer #1

i = 7%

Benefits starts from EOY 5 to EOY 10, total 6 cash flows

FW = -95000*(F/P,7%,10) - 12000*(F/A,7%,10) + 65000*(F/A,7%,6)

= -95000*1.967151 - 12000*13.816448 + 65000*7.153291

= 112287.14

As future worth is positive, this project should be selected

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