Please read the simple scenario carefully for the project, and answer the follow
ID: 3604339 • Letter: P
Question
Please read the simple scenario carefully for the project, and answer the following questions:
Video Store Project
Case Study Description
A video store sells and rents videos to people. A person must be a store member to rent from that store. On other word, a person who has a membership card may rent from the store while anyone can buy a video. Members can reserve videos for rent if all copies of it are currently rented. When a video is returned, the member will be called and the video held for up to 3 days, after which the reservation will be cancelled if unclaimed. Rental fees ($2 for 2 days) are paid at the time of rental. Late returns are fined (at $1/day), and fines must be paid before another video can be rented. A limited stock of videos is kept for sale, but a member can order a video for purchase. You are to build a system to support the operations of this business. Three different parties will use this computer system: the store clerk, the customer, and the store manager. • The clerk will add new members and rent out and return videos on behalf of members, including collecting payment of fees. The clerk may warn members several times for late returns. • The customer can search for titles (by name) and can place reservations for titles. Members can subscribe themselves for new title notifications. • The manager can add new titles and video copies, and print out various reports and statistics.
Q1:
Perform an NPV financial analysis for the mentioned project using the manual method. Assume that the projected costs and projected benefits for this project are spread over three years as follows:
The estimated costs are $85,000 in Year 0 and $30,000 each year in Years 1, and 2.
The estimated benefits are $0 in Year 0 and $90,000 each year in Years 1, and 2. Use 10 percent discount rate, and round the discount factors to two decimal places.
You must calculate the NPV manually and show your work using a table.
Explanation / Answer
Computation of Present Values :-
Year
Estimated Cost
Estimated Benefits
Cummulative Benefits
Amount ($)
Present Value Factor
Present Valu ($)
Amount ($)
Present Value Factor
Present Valu ($)
0
85000
1
76500
0
1
0
0
1
30000
0.92
26740
90000
0.92
80212
90000
2
30000
0.84
26250
90000
0.84
79286
180000
Total
145000
129490
180000
159498
Net Present Value = Presnt Value Estimated Benefits - Present Value of Estimated Cost
=> 159498 - 129490 = $ 30008
Year
Estimated Cost
Estimated Benefits
Cummulative Benefits
Amount ($)
Present Value Factor
Present Valu ($)
Amount ($)
Present Value Factor
Present Valu ($)
0
85000
1
76500
0
1
0
0
1
30000
0.92
26740
90000
0.92
80212
90000
2
30000
0.84
26250
90000
0.84
79286
180000
Total
145000
129490
180000
159498
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