Golden opportunities, a non-for-profit community association, is considering the

Question

Golden opportunities, a non-for-profit community association, is considering the proposed acquisition of a new training and education software. The price of the software system is $500,000, and it has a life expectancy of 3 years. The system will be sold at the end of the lifespan, with a salvage value 0f $150,000. While this new system will have no impact on the number of training session or reimbursement, it is however expected to save the association $5,000 per year in operating costs. On average, the instructors train 20 people per day for 200 days per year. Training material cost approximately $10 per session. Grant funding provides reimbursement of $75 for each training session. Year one expense include instructor labor ($75,000), building operating (rent and utilities of $40,000 and $20,000 respectively), and overhead of $5,000. Cost increase 5% annually. Revenues increase by 7% annually. The cost of capital is 10%. Calculate the net cash flow and the NPV.

Explanation / Answer

NPV = -$34,705

Year 0 1 2 3 Savings in operating costs $5,000 $5,000 $5,000 Reimbursement of training expenses $3,00,000 $3,21,000 $3,43,470 Training material cost $40,000 $42,000 $44,100 Instructor labour $75,000 $78,750 $82,688 Rent $40,000 $42,000 $44,100 Utilities $20,000 $21,000 $22,050 Operating cash flow $1,30,000 $1,42,250 $1,55,533 Initial investment -$5,00,000 Salvage value of software $1,50,000 Net cash flow -$5,00,000 $1,30,000 $1,42,250 $3,05,533 Cost of capital @10% $1 $0.909 $0.826 $0.751 Present value of cash flows -$5,00,000 $1,18,182 $1,17,562 $2,29,551

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.