Your company will generate $50,500 in cash flow each year for the next eleven ye
ID: 2754116 • Letter: Y
Question
Your company will generate $50,500 in cash flow each year for the next eleven years from a new information database. The computer system needed to set up the database costs $282,000. Assume you can borrow the money to buy the computer system at 8.50 percent annual interest.
Calculate the present value of the generated cash flows. (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Present Value =
Can you afford the new system?
Yes or No
Your company will generate $50,500 in cash flow each year for the next eleven years from a new information database. The computer system needed to set up the database costs $282,000. Assume you can borrow the money to buy the computer system at 8.50 percent annual interest.
Explanation / Answer
REQUIREMENT 1
Net present value of project = Present value of cash Inflow - Present value of cash outflow
= $351,934.5 - $282,000
= 69934.5
Present value of cash outflow
Particulars
(at Y= 0) Amount
Cash outflow
$ $282,000
PVF (Y=0)
1
Present value of cash outflow
$282,000
Present value of cash Inflow
Particulars
(at Y= 0) Amount
Cash Inflow
$50,500
PVF 8.5% (Year=1-11)
6.969
Present value of cash outflow
$351,934.5
REQUIREMENT 2
YES, we afford the new system as the net present value is positive
Particulars
(at Y= 0) Amount
Cash outflow
$ $282,000
PVF (Y=0)
1
Present value of cash outflow
$282,000
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